A is corrent. Held-to-maturity investments should be reported at amortized cost on the balance sheet. The carrying value of long-term investments on December 31, year 1
, will be the carrying value on January 1, year 1
, plus the discount amortization. Discount amortization is the difference between interest revenue and interest receivable. Interest revenue is the book value of the bonds times the yield rate of interest ($456,200 × .10 = $45,620). Interest receivable is the face value of the bonds times the face rate of interest ($500,000 × .08 = $40,000). The adjusting entry on December 31, year 1
, will be
| Interest receivable | 40,000 | |
| Bond investment
(long-term) | 5,620 | |
| | Interest revenue | | 45,620 |
Thus, the carrying value of the
bonds on December 31, year 1, is $461,820 ($456,200 + $5,620). The above entry
assumes that the bonds were recorded net when purchased. If a discount of
$43,800 was recorded, the $5,620 debit would be to the discount account.
B is incorrect. Held-to-maturity investments should be reported at amortized cost on the balance sheet. The carrying value of long-term investments on December 31, year 1
, will be the carrying value on January 1, year 1
, plus the discount amortization. Discount amortization is the difference between interest revenue and interest receivable. Interest revenue is the book value of the bonds times the yield rate of interest ($456,200 × .10 = $45,620). Interest receivable is the face value of the bonds times the face rate of interest ($500,000 × .08 = $40,000). The adjusting entry on December 31, year 1
, will be
| Interest receivable | 40,000 | |
| Bond investment
(long-term) | 5,620 | |
| | Interest revenue | | 45,620 |
Thus, the carrying value of the
bonds on December 31, year 1, is $461,820 ($456,200 + $5,620). The above entry
assumes that the bonds were recorded net when purchased. If a discount of
$43,800 was recorded, the $5,620 debit would be to the discount account.
C is incorrect. Held-to-maturity investments should be reported at amortized cost on the balance sheet. The carrying value of long-term investments on December 31, year 1
, will be the carrying value on January 1, year 1
, plus the discount amortization. Discount amortization is the difference between interest revenue and interest receivable. Interest revenue is the book value of the bonds times the yield rate of interest ($456,200 × .10 = $45,620). Interest receivable is the face value of the bonds times the face rate of interest ($500,000 × .08 = $40,000). The adjusting entry on December 31, year 1
, will be
| Interest receivable | 40,000 | |
| Bond investment
(long-term) | 5,620 | |
| | Interest revenue | | 45,620 |
Thus, the carrying value of the
bonds on December 31, year 1, is $461,820 ($456,200 + $5,620). The above entry
assumes that the bonds were recorded net when purchased. If a discount of
$43,800 was recorded, the $5,620 debit would be to the discount account.
D is incorrect. Held-to-maturity investments should be reported at amortized cost on the balance sheet. The carrying value of long-term investments on December 31, year 1
, will be the carrying value on January 1, year 1
, plus the discount amortization. Discount amortization is the difference between interest revenue and interest receivable. Interest revenue is the book value of the bonds times the yield rate of interest ($456,200 × .10 = $45,620). Interest receivable is the face value of the bonds times the face rate of interest ($500,000 × .08 = $40,000). The adjusting entry on December 31, year 1
, will be
| Interest receivable | 40,000 | |
| Bond investment
(long-term) | 5,620 | |
| | Interest revenue | | 45,620 |
Thus, the carrying value of the
bonds on December 31, year 1, is $461,820 ($456,200 + $5,620). The above entry
assumes that the bonds were recorded net when purchased. If a discount of
$43,800 was recorded, the $5,620 debit would be to the discount account.
