Question

On November 1, 2021, Blossom Company purchased Splish, Inc., 10-year, 10%, bonds with a face value of $900000, for $820000. An additional $34000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2028. Blossom uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Blossom's 2021 income statement as a result of Blossom's available-for-sale investment in Splish was

A. $9850.
B. $12150.
C. $13000.
D. $11000.

Answer 1

C. $13000

Step-by-step explanation:

Face Value 900000

Interest Rate 10%

Half Yearly Interest Rate 5%

900000 × 5% = 45,000

Amortization = (900000 - 820000) * 2 months /80 months = 2,000

Accrued Interest = 34,000

Amount reported in Blossom 2021 Income Statement

= Total Interest + Amortization -Accrued Interest

45,000 + 2,000 - 34,000

= $13,000