On January 1, 2017, Phantom Company acquires $200,000 of Spiderman Products, Inc., 9% bonds at a price of $185,589. Interest is received on January 1 of each year, and the bonds mature on January 1, 2020. The investment will provide Phantom Company a 12% yield. The bonds are classified as held-to-maturity. Instructions (a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.

Explanation:

(a)

Schedule of Interest Revenue and Bond Discount Amortization

Straight-line Method

9% Bond Purchased Yields 12%

Date    Cash Receive   Interest Rev  Amortization   Carrying Amount

01/01/17      —                      —               —             185,589

01/01/18  18,000          22,804          4,804             190,393

01/01/19  18,000          22,804          4,804              195,197

01/01/20  18,000          22,803          4,803             200,000

Cash Rev = 200,000*9% = 18,000

Ammortization  = ($200,000 – $185,589) ÷ 3 = $4,804

Interest Rev = 18,000+4,804 = 22,804

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