Ask Question
12 February, 23:46

Given - Lamar Corporation owns 60 percent of Humbolt Corporation's voting shares. On January 1, 20X2, Lamar Corporation sold $170,000 par value, 10 percent first mortgage bonds to Humbolt for $177,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. I am trying to find the breakdown for interest income and investment in Lamar corporation bonds. I know that the two should total 8,500.

+1
Answers (1)
  1. 13 February, 00:03
    0
    The necessary journal entries are:

    Dr Cash $8,500

    Cr Investment in Lamar Co. $700

    Cr Interest income $7,800

    Being receipt of coupon interest and amortization of bond premium

    Find detailed analysis in the explanation section below.

    Explanation:

    The semi-annual interest receivable from investment in Lamar corporation bonds is calculated thus:

    interest income=par value * coupon rate * 6months/12months

    interest income=$170,000*10%*6/2

    Interest income = $8,500

    Also the premium paid upon the purchase of the bonds of $7000 ($177,000-$170,000) should be amortized over the entire duration of investment of 10 years, hence yearly amortization of premium is $7000/10yrs

    that is $700 per year

    The breakdown the $8,500 into interest income and amortization of premium is shown below:

    Dr Cash $8,500

    Cr Investment in Lamar Co. $700

    Cr Interest income $7,800

    Being receipt of coupon interest and amortization of bond premium
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Given - Lamar Corporation owns 60 percent of Humbolt Corporation's voting shares. On January 1, 20X2, Lamar Corporation sold $170,000 par ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers