Farve purchased ten $1,000, 10 percent bonds issued by Marino Corporation for 104 on July 1, 2012. The bonds will mature on July 1, 2022, and pay interest on June 30 and December 31. Farve uses the straight-line method to amortize premiums and discounts. How much interest revenue should Farve recognize from its investment for the year ending December 31, 2012?

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Farve should recognize $480 interest revenue for the year ending December 31, 2012. The bonds were purchased for $104,000, which is a premium of $4,000 over the face value of $100,000. The premium is amortized over the life of the bonds, which is 10 years. The annual amortization is $400 ($4,000 / 10). The interest revenue for the year is $500 (10% x $100,000), less the amortization of the premium, which is $200 ($400 / 2).

Farve Purchased Ten $1,000, 10 Percent Bonds Issued by Marino