On January 1,2014,Bucket Company purchased as an investment a $1,000,7% bond for $980.Bucket plans to hold the bond until the maturity date of January 1,2024.The bond pays interest on January 1 and July 1.The company's fiscal year ends on December 31.The journal entry on December 31,2014 is:

Question

Quizplus · Accepted Answer

The bond pays interest semi-annually, so the interest for one period is $1,000 x 7% / 2 = $35. Since the bond was purchased at a discount, the amortization of the discount for one period is ($1,000 - $980) / (10 years x 2 periods per year) = $1. Therefore, the entry is to debit Interest Receivable for $35, debit Held-to-Maturity Investment in Bond for $1, and credit Interest Revenue for $36.

On January 1,2014,Bucket Company Purchased as an Investment a $1,000,7