On January 1, 2019, Lynch Company acquired 13% bonds with a face value of $50,000. The bonds pay interest on June 30 and Decembe

Question

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On January 1, 2019, Lynch Company acquired 13% bonds with a face value of $50,000. The bonds pay interest on June 30 and Decembe

r 31 and mature on December 31, 2021. Lynch paid $51,229.35, a price that yields a 12% effective annual interest rate. Required: 1. Record the purchase of the bonds. 2. Prepare an investment interest income and premium amortization schedule using the effective interest method. 3. Record the receipts of interest on June 30, 2019, and December 31, 2021.

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1 answer:

My name is Ann [436] · Answer 1 · 2023-05-09T07:48:04+03:00

Answer:

1) CR Cash/Bank $51,229.35 , DR Bonds Receivable Account $50,000 and DR Premium on Bond Payable Account.

(2) Please see attached for Investment Interest Income Amortization Schedule

(3) Recording of Interest Received

June 30, 2019

CR Income statement (Interest Received) -$3,000, CR Premium on Bond Receivable $250

December 31, 2021

CR Income Statement (Interest Received) -$2915.44

Explanation:

(1) CR Cash/Bank $51,229.35 , DR Bonds Receivable Account $50,000 and DR Premium on Bond Payable Account.