On April 1, 2008, Country Pride Company purchased $8,000 of 7% bonds as a long- term investment to be held to maturity. Country Pride's year end is December 31. Interest dates are April 1 and October 1. The bonds mature 36 months from the purchase date. The purchase price of the bonds was $8,570, and the premium is amortized on the straight- line basis. Assume the proper adjusting entry was made on December 31, 2008 to record accrued interest receivable and amortization of the premium. The total interest revenue recorded by Country Pride Company on April 1, 2009 will be:

Question

Quizplus · Accepted Answer

The correct answer is A because the total interest revenue recorded by Country Pride Company on April 1, 2009 will be $92.50. This is calculated as follows:Interest revenue = (Face value of bonds x Stated interest rate) / 2= ($8,000 x 7%) / 2= $280Amortization of premium = (Premium paid / Number of months to maturity)= ($570 / 36)= $15.83Total interest revenue = Interest revenue - Amortization of premium= $280 - $15.83= $92.50

On April 1, 2008, Country Pride Company Purchased $8,000 of 7