A company holds a $100,000 face value corporate bond, bought January 1, 2019, paying 3% annually...
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A company holds a $100,000 face value corporate bond, bought January 1, 2019, paying 3% annually on December 31, and maturing December 31, 2021. The company paid $102,884 for the bond, to yield 2%. The company categorizes the bond as a held-to-maturity investment, and its accounting year ends December 31. Round answers to the nearest dollar.
What is the approximate net entry to record receipt of interest and principal on December 31, 2021, assuming no impairment on the bond throughout its life?A. Cash
103,000
Interest revenue
2,020
Investment in bond
100,980
B. Cash
103,000
Interest revenue
3,000
Investment in bond
100,000
C. Cash
102,000
Interest revenue
2,000
Investment in bond
100,000
D. Cash
103,000
Interest revenue
116
Investment in bond
102,884
Homework Answers
Answer is option A
|
A. |
|
|
Date |
Cash receipt |
Interest revenue |
Amortization of premium |
Carrying value |
|
1/1/19 |
102884 |
|||
|
12/31/19 |
3000 |
2058 |
942 |
101942 |
|
12/31/20 |
3000 |
2039 |
961 |
100980 |
|
12/31/21 |
3000 |
2020 |
980 |
100000 |
Cash receipt = 100000*3%
Interest revenue = previous carrying value *2%
Amortization of premium = cash receipt – interest revenue
Carrying value = previous carrying – amortization of premium
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