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ecember 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of
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ecember 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:

User Seneyr
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21 votes
21 votes

Answer:

$3,372.60

Step-by-step explanation:

Full question "On January 1, 2021, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $4,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:"

FV of the bond = $100,000

Coupon rate = 6% = 6%/2 = 3%

Effective rate = 7% = 7%/2 = 3.5%

Purchase Price of the Bond = $100,000 - $4,000

Purchase Price of the Bond = 96,000

First interest

Cash interest = 100,000*3% = $3,000

interest Revenue = 96,000*3.5% = $3,360

Discount Amortized = interest Revenue - Cash interest = $3360 - $3,000 = $360

Carrying Value of the Bond = Purchase Price of the Bond + Discount Amortized = $96,000 + $360 = $96,360

Second interest

Interest Revenue = Carrying Value * Effective interest Rate

Interest Revenue = $96,360 * 3.5%

Interest Revenue = $3,372.60

So, for the second period of interest, Rupar would record a credit to interest revenue of $3,372.60

User Ruben Vermeersch
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