On january 1, 2021, tiger corporation acquired as long-term investment $1,000,000 of 8% bonds, dated january 1. company management has the positive intent and ability to hold the bonds until maturity. the market interest rate (yield) was 10% for bonds of similar risk and maturity. tiger paid $875,378 for the bonds. the company will receive interest semiannually on june 30 and december 31. as a result of changing market conditions, the fair value of the bonds at december 31, 2021, was $885,000. at what amount will tiger report its investment in the december 31, 2021, balance sheet?

the bonds will be reported at net:              882,727.36

Explanation:

face value 1,000,000

purchase     875, 378

discount       124, 622

we use the effective market rate method:

June 30th

effective rate per payment: 10% / 2 = 5% as there are two payment per year

and the

interest revenue 875,378 x 5% = 43.768,9‬

cash procces: 1,000,000 x 4% = 40,000

amortization:  3,768.9

December 31th

carrying value:     875, 378 - 3,768.9 = 871,609.1

interest revenue: 871,609.1 x 5% =         43.580,455

cash procces:   1,000,000 x 4% =           40,000

amortization                                               3,580.46

Carrying value at December 31th

discount 124, 622 - 3,768.9 - 3,580.46 = 117.272,64

face value 1,000,000

discount         117.272,64

net:              882,727.36

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