Question

On November 1, 2021, Ivanhoe Company purchased Concord, Inc., 10-year, 8%, bonds with a face value of $700000, for $620000. An additional $14000 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2028. Ivanhoe uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Ivanhoe's 2021 income statement as a result of Ivanhoe's available-for-sale investment in Concord was:____________

Answer 1

The amount reported in Ivanhoe's 2021 income statement as a result of Ivanhoe's available-for-sale investment in Concord was $7333.33

Step-by-step explanation:

First the premium on the bond investment is difference between the face value and the cash paid i.e $80,000($700,000-$620,000)

The premium is to be amortized over the bond life of 80 months

Year 2021 = 2 months

Years 2022-2027=6*12 months=7 2 months

Year 2028 =6 months

Total =80 months

Amortization per month=$80,000/80=$1000

interest due on 31st December 2021=$700,000*8%*2/12=$ 9,333.33

Income recognised= $9,333.33-(2*$1000)