Reference no: EM132520672

Question - Effective-Interest versus Straight-Line Bond Amortization

On January 1, 2020, Falcon Electro acquires $400,000 of 8% bonds at a price of $442,376. The interest is payable each December 31, and the bonds mature December 31, 2040. The investment will provide Falcon Electro a 7% 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, 2021, and the discount amortization under the straight-line method.

(d) Prepare the journal entry for the interest receipt of December 31, 2021, and the discount amortization under the effective-interest method.