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Amortized cost method to account for bonds

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On January 1, 20X4, Woodwork Inc. purchased a $300,000, five-year, 4% interest rate bond. The bond pays interest semi-annually on June 30 and December 31. The market rate at the time of the purchase was 5%, which resulted in Woodwork paying $287,148 for the bonds. Woodwork intends to hold onto the bond to collect contractual cash flows; therefore, it has decided to use the amortized cost method to account for the bonds.

Which of the following forms part of the journal entry that Woodwork should record to account for the receipt of the first interest payment on this bond on June 30, 20X4?

a) Debit to cash for $7,500
b) Credit to interest revenue for $7,500
c) Credit to interest revenue for $7,179
d) Credit to interest revenue for $6,000

What amount should Woodwork record to the investment at amortized cost account for the receipt of its first interest payment on June 30, 20X4?

a) $321
b) $1,179
c) $6,000
d) $7,179

Reference no: EM13845824

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