Answer and Explanation:
The journal entries and the amount reported on the balance sheet is as follows:
1&2 The journal entries are as follows:
Investment in Bonds $240 million
Premium on Bond Investment $40 million
To Cash $280 million
(Being investments in Bonds is recorded)
Cash (3% × $240 million) $7.2 million
To Premium on Bonds A/c (Bal Figure) $1.6 million
To Interest Revenue A/c (2% × $280 million) $5.6 million
(Being Interest is recorded)
3. Now the amount reported on the balance sheet is
Investment in Bonds $240 million
Original Premium $40 million
Less: Amortization -$1.6 million
Amount to be reported in Balance sheet $278.4 million
