Question

Bright Company purchased $10,000,000 (face amount) of 10% bonds of Enterprise Company on January 1, 2021, paying $8,853,000. The 10-year bonds mature on January 1, 2031. Semiannual interest is payable each July 1 and January 1. The discount of $1,147,000 provides an effective yield (market rate) of 12%. Bright Company uses the effective-interest method and plans to hold these bonds to maturity.

On July 1, 2011, Bright Company should increase its Held-to-Maturity Debt Securities
account for the Enterprise Co. bonds by __________.

Answer 1

$31,180

Step-by-step explanation:

Bright Company

Bond payments $8,853,000 ×0.06

=$531,180

Less Face amount $10,000,000×0.05

=$500,000

Held-to-Maturity Debt Securities $31,180

($531,180-$500,000)

Effective yield (market rate)

12%÷2= 6%.

Bonds

10%÷2=5%