Use the following information to answer questions
On July 1, 2010, L Co. purchased, as an investment, $100,000 of T Co.'s just-issued 10%, 20-year bonds payable. The bonds pay interest annually on June 30. L Co. intends to hold the bonds to maturity. L Co. uses the straight-line method to amortize and bond discounts or premiums.
-If L Co. paid $97,000 for the bonds, at December 31, 2010, L Co. will show its Investment in Bonds account at

Question

Use the following information to answer questions 
On July 1, 2010, L Co. purchased, as an investment, $100,000 of T Co.'s just-issued 10%, 20-year bonds payable. The bonds pay interest annually on June 30. L Co. intends to hold the bonds to maturity. L Co. uses the straight-line method to amortize and bond discounts or premiums.
-If L Co. paid $97,000 for the bonds, at December 31, 2010, L Co. will show its Investment in Bonds account at

Quizplus · Accepted Answer

The correct answer is E) $97,075. Since L Co. uses the straight-line method to amortize bond discounts or premiums, the discount of $3,000 ($100,000 - $97,000) is amortized evenly over the bond's 20-year life. This results in an annual amortization of $150 ($3,000 / 20 years). Since the bonds were purchased on July 1, 2010, and the financial statement date is December 31, 2010, only half a year's amortization applies, which is $75 ($150 / 2). Therefore, the Investment in Bonds account at December 31, 2010, is $97,075 ($97,000 purchase price + $75 amortization).

Use the Following Information to Answer Questions