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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 $103,400 for the bonds, at December 31, 2010, L Co. will show its Investment in Bonds account at

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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 $103,400 for the bonds, at December 31, 2010, L Co. will show its Investment in Bonds account at

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The correct answer is C) $103,315. L Co. paid $103,400 for the bonds, which is a premium over the face value of $100,000. The premium of $3,400 will be amortized over the 20-year life of the bonds using the straight-line method. In six months (from July 1 to December 31, 2010), half a year's amortization would occur. The annual amortization is $3,400 / 20 = $170. For six months, this is $170 / 2 = $85. Therefore, by December 31, 2010, the Investment in Bonds account would be shown at the purchase price minus six months of premium amortization: $103,400 - $85 = $103,315.

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