Question

On October 1, 2018, Menke Company purchased to hold to maturity, 500, $1,000, 9% bonds for $520,000. An additional $15,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2022. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2018 income statement from this investment should be-----------------

Answer 1

Menke Company should report $11,250 as interest income on their 2018 income statement.

Step-by-step explanation:

On the income statement, Menke Company should report the interest income earned from the bonds for the period of October 1, 2018, to December 31, 2018. To calculate this, we need to determine the interest income per bond. The annual interest payment per bond is $1,000 x 9% = $90. Since the bonds were purchased on October 1, 2018, there are 3 months left in the year, so the interest income per bond for that period is $90 x 3/12 = $22.50. Therefore, the total interest income from the bonds for Menke's 2018 income statement is $22.50 x 500 = $11,250.