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"In 2020, a customer buys a 3 3/4% U.S. Government bond maturing in 2029 at 104-16. The customer elects to amortize the bond premium for tax purposes. If the bond is sold after 2 years, its cost basis
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"In 2020, a customer buys a 3 3/4% U.S. Government bond maturing in 2029 at 104-16. The customer elects to amortize the bond premium for tax purposes. If the bond is sold after 2 years, its cost basis at that time is:"

User Ed Chapel
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1 Answer

2 votes

Answer:

carrying value after 2 years = $967.64

Step-by-step explanation:

the journal entry to record the purchase of the bond:

Dr Investment in bonds 1,000

Dr Premium on investment in bonds 41.60

Cr Cash 1,041.60

Assuming a straight line amortization, the yearly amortization = $41.60 / 9 years = $4.62 per year

carrying value at moment of purchase = $958.40

carrying value after 1 year = $963.02

carrying value after 2 years = $967.64

User Nathan Campos
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