(Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2006, Phantom Company acquires $200,000 of Spiderman Products, Inc.,...
Question:
(Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2006, Phantom Company acquires $200,000 of Spiderman Products, Inc., 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2008. The investment will provide Phantom Company a 12% yield. The bonds are classified as held-to-maturity.
Instructions
(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.
(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method.
(c) Prepare the journal entry for the interest receipt of December 31, 2007, and the discount amortization under the straight-line method.
(d) Prepare the journal entry for the interest receipt of December 31, 2007, and the discount amortization under the effective-interest method.
Step by Step Answer:
Intermediate Accounting 2007 FASB Update Volume 2
ISBN: 9780470128763
12th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield