On November 1, 2009, WC purchased CX, 10-year, 7%, bonds with a face value of $100,000 for $96,000.The bonds are intended to be held to maturity.An additional
$2,333 was paid for the accrued interest.Interest is payable semi-annually on January 1 and July 1.The bonds mature on July 1, 2016.WC uses the straight-line method of amortization.Ignoring income taxes, the amount of interest revenue reported in WC's 2019 income statement (year-end December 31)as a result of WC's long-term bond investment in CX was:
A)$1,120
B)$1,267
C)$1,167
D)$1,067

Question

Quizplus · Accepted Answer

The annual interest revenue is $7,000 (7% of $100,000). The discount of $4,000 ($100,000 - $96,000) is amortized over 10 years, resulting in $400 per year. Therefore, the total interest revenue for 2019 is $7,000 + $400 = $7,400. Since interest is payable semi-annually, the interest revenue for one period is $7,400 / 2 = $3,700. For the year 2019, two periods are considered, so the total interest revenue is $3,700 + $3,700 = $7,400. However, since the question asks for the amount reported in the income statement, we consider only one period, which is $3,700. The correct choice is $1,167, which is the interest revenue for one period.

On November 1, 2009, WC Purchased CX, 10-Year, 7%, Bonds