EXERCISE 17-5 (20–30 minutes)

(a) Schedule of Interest Revenue and Bond Discount Amortization

Straight-line Method
9% Bond Purchased to Yield 12%
Cash Interest Bond Discount Carrying Amount
Date Received Revenue Amortization of Bonds
1/1/17 — — — $185,589
1/1/18 $18,000 $22,804 *$4,804* 190,393
1/1/19 18,000 22,804 4,804 195,197
1/1/20 18,000 22,803** 4,803 200,000

**($200,000 – $185,589) ÷ 3 = $4,804

**Rounded by $1.
EXERCISE 17-5 (Continued)

(b) Schedule of Interest Revenue and Bond Discount Amortization

Effective-Interest Method
9% Bond Purchased to Yield 12%
Cash Interest Bond Discount Carrying Amount
Date Received Revenue Amortization of Bonds
1/1/17 — — — $185,589.00
1/1/18 $18,000 $22,270.68* $4,270.68 189,859.68
1/1/19 18,000 22,783.16 4,783.16 194,642.84
1/1/20 18,000 23,357.16** 5,357.16 200,000.00

**$185,589 X .12 = $22,270.68

**Rounded by $.02.
(c) December 31, 2018
Interest Receivable................................................... 18,000.00
Debt Investments ..................................................... 4,804.00
Interest
Revenue ...........................................................................22,804.00
(d) December 31, 2018
Interest Receivable................................................... 18,000.00
Debt Investments ..................................................... 4,783.16
Interest
Revenue ...........................................................................22,783.16
LO: 1, Bloom: AP, Difficulty: Moderate, Time: 20-30, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC:
Problem Solving