Question

Blossom Company purchased $850000 of 9% bonds of Scott Company on January 1, 2021, paying $797036. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $52964 provides an effective yield of 10%. Blossom Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2021, Blossom Company should report interest revenue from the Scott Company bonds of: $81796. $79784. $79704. $76500.

Answer 1

Answer:

$79784

Explanation:

Calculation to determine what Blossom Company should report interest revenue from the Scott Company bonds

First step is to calculate the increase in Held-to-Maturity Debt Securities account

Held-to-Maturity Debt Securities=($797036 × 10%/2) - ($850000 ×9%/2)

Held-to-Maturity Debt Securities=($797036 × 5%) - ($850000 ×4.5%)

Held-to-Maturity Debt Securities=$39,851.8-$38,250

Held-to-Maturity Debt Securities=$1,602

Now let calculate the Interest Revenue

Interest Revenue=[$797036 × (10%/2)]+[($797036 + $1,602) × 10%/2]

Interest Revenue=[$797036 × (10%/2)]+[($797036 + $1,602) × .05]

Interest Revenue= $39,852+$39,932

Interest Revenue= = $79784

Therefore Blossom Company should report interest revenue from the Scott Company bonds of $79784