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Q9E-3

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Horngren'S Financial And Managerial Accounting
Found in: Page 569

Short Answer

Question: E10-9 Accounting for debt investments

Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.

Requirements

3. How much interest revenue will Advance report during 2018 on this bond investment?

Answer

The business entity will receive $33,000 as interest during 2018.

See the step by step solution

Step by Step Solution

Step 1: Definition of Holding Period

The period for which the investor holds the investment is known as the holding period. It depends upon the type of investment made.

Step 2: Interest Reported During 2018

Particular

Amount $

Interest received on 30 June 2018

$16,500

Add: Interest received on 31 Dec 2018

$16,500

Total interest received during the year 2018

$33,000

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