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Tudor Company acquired $500,000 of Carr Corporation bonds for$487,706.69 on January 1, 2019. The...

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Accounting

Tudor Company acquired $500,000 of Carr Corporation bonds for$487,706.69 on January 1, 2019. The bonds carry an 11% statedinterest rate, pay interest semiannually on January 1 and July 1,were issued to yield 12%, and are due January 1, 2022.

Required:

1.Prepare an investment interest income and discount amortizationschedule using the:
a.straight-line method
b.effective interest method
2.Prepare the July 1, 2021, journal entries to record theinterest income under both methods.

1a. Prepare an investment interest income and discountamortization schedule using the straight-line method.

Amortization Schedule Instructions

TUDOR COMPANY

Bond Investment Interest Income and Discount AmortizationSchedule

Straight-Line Method

1

Date

Cash Debit

Investment in Debt Securities Debit

Interest Income Credit

Carrying Value of Debt Securities

2

01/01/19

3

07/01/19

4

01/01/20

5

07/01/20

6

01/01/21

7

07/01/21

8

01/01/22

1b. Prepare an investment interest income and discountamortization schedule using the effective interest method.

Amortization Schedule Instructions

TUDOR COMPANY

Bond Investment Interest Income and Discount AmortizationSchedule

Effective Interest Method

1

Date

Cash Debit

Interest Income Credit

Investment in Debt Securities Debit

Carrying Value of Debt Securities

2

01/01/19

3

07/01/19

4

01/01/20

5

07/01/20

6

01/01/21

7

07/01/21

8

01/01/22

2a. Prepare the July 1, 2021, journal entry to record theinterest income under the straight-line method.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

DATEACCOUNT TITLEPOST. REF.DEBITCREDIT

1

2

3

2b. Prepare the July 1, 2021, journal entry to record theinterest income under the effective interest method.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

DATEACCOUNT TITLEPOST. REF.DEBITCREDIT

1

2

3

Answer & Explanation Solved by verified expert
3.7 Ratings (645 Votes)

Answer :

(1) a.Straight -Line Method
($)
Face value 500,000.00
Issue price 487,706.69
Total discount 12,293.31
Semi Annual Amortization 2,048.89
Date Cash Debit Investment in Debit Interest income credit Carrying value of security
1/1/2019 487,706.69
1/1/2019 27,500.00 2,048.89 29,548.89 489,755.58
1/1/2020 27,500.00 2,048.89 29,548.89 491,804.46
1/1/2020 27,500.00 2,048.89 29,548.89 493,853.35
1/1/2021 27,500.00 2,048.89 29,548.89 495,902.23
1/1/2021 27,500.00 2,048.89 29,548.89 497,951.12
1/1/2022 27,500.00 2,048.89 29,548.89 500,000.00
(b). Effective interest method
Date Beginning book value Cash receipt Interest revenue Difference Carrying value of security
(1) (2) (3) 5.5% on face value (4) = 6% on carrying amount (5) = (4)- (3) (6) = (2)-(5)
1/1/2019 487,706.69
1/1/2019 487,706.69 27,500.00 29,262.40 1,762.40 489,469.09
1/1/2020 489,469.09 27,500.00 29,368.15 1,868.15 491,337.24
1/1/2020 491,337.24 27,500.00 29,480.23 1,980.23 493,317.47
1/1/2021 493,317.47 27,500.00 29,599.05 2,099.05 495,416.52
1/1/2021 495,416.52 27,500.00 29,724.99 2,224.99 497,641.51
1/1/2022 497,641.51 27,500.00 29,858.49 2,358.49 500,000.00
2.(a) Journal Entries in Straight line Method
Date Account title Debit $ Credit $
1/72021 Cash 27,500.00
Investment in securities 2,048.89
Interest income 29,548.89
(To record semi annual interest revenue)
2.(b). Effective Method
1/7/2021 Cash 27,500.00
Investment in Securities 2,224.99
Interest income 29,724.99
(To record semiannual interest revenue)

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Transcribed Image Text

In: AccountingTudor Company acquired $500,000 of Carr Corporation bonds for$487,706.69 on January 1, 2019. The bonds...Tudor Company acquired $500,000 of Carr Corporation bonds for$487,706.69 on January 1, 2019. The bonds carry an 11% statedinterest rate, pay interest semiannually on January 1 and July 1,were issued to yield 12%, and are due January 1, 2022.Required:1.Prepare an investment interest income and discount amortizationschedule using the:a.straight-line methodb.effective interest method2.Prepare the July 1, 2021, journal entries to record theinterest income under both methods.1a. Prepare an investment interest income and discountamortization schedule using the straight-line method.Amortization Schedule InstructionsTUDOR COMPANYBond Investment Interest Income and Discount AmortizationScheduleStraight-Line Method1DateCash DebitInvestment in Debt Securities DebitInterest Income CreditCarrying Value of Debt Securities201/01/19307/01/19401/01/20507/01/20601/01/21707/01/21801/01/221b. Prepare an investment interest income and discountamortization schedule using the effective interest method.Amortization Schedule InstructionsTUDOR COMPANYBond Investment Interest Income and Discount AmortizationScheduleEffective Interest Method1DateCash DebitInterest Income CreditInvestment in Debt Securities DebitCarrying Value of Debt Securities201/01/19307/01/19401/01/20507/01/20601/01/21707/01/21801/01/222a. Prepare the July 1, 2021, journal entry to record theinterest income under the straight-line method.General Journal InstructionsPAGE 1GENERAL JOURNALDATEACCOUNT TITLEPOST. REF.DEBITCREDIT1232b. Prepare the July 1, 2021, journal entry to record theinterest income under the effective interest method.General Journal InstructionsPAGE 1GENERAL JOURNALDATEACCOUNT TITLEPOST. REF.DEBITCREDIT123

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