Answer:
January 1, 2020
Dr Investment in Chocolate Inc. bonds 70,000
Dr Discount on investment in bonds 2,769.46
Cr Cash 72,769.46
December 31, 2020
Dr Cash 3,500
Cr Interest revenue 3,274.63
Cr Discount on investment in bonds 225.37
December 31, 2020
Dr Cash 3,500
Cr Interest revenue 3,284.77
Cr Discount on investment in bonds 215.23
carrying value on December 2021 = $73,210.06
Explanation:
the market price of the bonds:
PV of face value = $70,000 / (1 + 4.5%)¹⁰ = $45,074.94
PV of coupon payments = $3,500 x 7.91272 (PVIFA, 4.5%, 10 periods) = $27,694.52
market price = $72,769.46
discount amortization = ($72,769.46 x 4.5%) - $3,500 = $225.37
discount amortization = ($72,994.83 x 4.5%) - $3,500 = $215.23
