Question

On January 1, 2020, the Widner Company acquired 12% bonds with a face value of $350,000 and classified them as held-to-maturity. The bonds pay interest on June 30 and December 31, and mature on December 31, 2029. Required: a. Assume the bonds were acquired for $312,921 to yield 14%. Prepare an investment discount amortization schedule for the first year of the investment, using the effective interest method. Assume a 360-day year.

Answer 1

The investment discount amortization schedule calculates the interest expense and discount amortization for a held-to-maturity bond using the effective interest method. It shows the beginning and ending carrying value of the bond, as well as the effective interest expense, interest paid, and discount amortization for each period.

Step-by-step explanation:

The investment discount amortization schedule calculates the interest expense and discount amortization for a held-to-maturity bond using the effective interest method. The formula to calculate the interest expense is face value of the bond multiplied by the effective interest rate, while the discount amortization is the difference between the interest expense and the interest paid. Here is an example of an investment discount amortization schedule for the first year:

Date Beginning Carrying Value Effective Interest Expense Interest Paid Discount Amortization Ending Carrying Value Jaan 1$312,921$43,799.94--$309,121.06Jun 30$309,121.06$43,338.55$21,000$22,338.55$286,782.51Dec 31$286,782.51$40,354.95$21,000$19,354.95$267,427.56