Question

On October 1, year 14, Park Co. purchased 200 of the $1,000-face-value, 10% bonds of Ott, Inc., for $220,000, including accrued interest of $5,000. The bonds, which mature on January 1, year 21, pay interest semiannually on January 1 and July 1. Park used the straight-line method of amortization and appropriately recorded the bonds as held-to-maturity. On Park's December 31, year 15, balance sheet, the bonds should be reported at:_______.

Answer 1

Answer:

Bond receivable - Ott Inc 200,000

Premium on B.R Ott Inc       14,400

Interest receivables             10,000

Net:                                     224,400

Explanation:

As Park Co uses straight line method, we don't have to solve for the present value of the bond we directly label the difference between cost and face value as premium or discount accordingly. Premium when above and discount when lower.

accrued interest:

200 bonds x $1,000 each x 10% x 3/12 = 5,000

220,0000 cost - 5,000 interest - 200,000 face value = 15,000 bond premium

Balance at December year 15:

the interest payable will be for the entire period:

200,000 x 10% / 2 = 10,000

the premium will be amortized for 3 month.

and it has outstanding 75 month to mature from October 1st

15,000 x 3 / 75 months = 600

carrying value 15,000 - 600 = 14,400