Question

On January 1, 2016, Weaver Company purchased as held-to-maturity debt securities $500,000 face value of Park Corporation's 8% bonds for $456,200. The bonds were purchased to yield 10% interest and pay interest annually. The bonds mature on January 1, 2021. Weaver uses the effective interest method of amortization. What amount should Weaver report on its December 31, 2016, balance sheet as an investment in held-to-maturity debt securities

Answer 1

$461,820

Step-by-step explanation:

Calculation to determine What amount should Weaver report on its December 31, 2016, balance sheet as an investment in held-to-maturity debt securities

First step

Amortization of discount= Purchased value of bond × interest rate of return - face value of bond × interest rate

Amortization of discount= $456,200 × 10% - $500,000 × 8%

Amortization of discount= $45,620 - $40,000

Amortization of discount= $5,620

Now the amount reported is

investment in held-to-maturity debt securities= Purchased value + discount amortization

investment in held-to-maturity debt securities= $456,200 + $5,620

investment in held-to-maturity debt securities= $461,820

Therefore What amount should Weaver report on its December 31, 2016, balance sheet as an investment in held-to-maturity debt securities is $461,820