Discount and Premium Amortization
Response to the following problem:
Tanzanite Corporation issued $500,000 of 7% debentures to yield 11%, receiving $424,624.
Interest is payable semiannually, and the bonds mature in five years.
1. What entries would be made by Tanzanite for the first two interest payments, assuming premium or discount amortization on interest dates by (a) the straight-line method and
(b) the effective-interest method? (Round to the nearest dollar.)
2. What entries would be made on the books of the investor for the first two interest receipts, assuming premium or discount amortization on interest dates and that one party obtained all the bonds and used the straight-line method of amortization? (Round to the nearest dollar.)
3. If the sale is made to yield 5%, $543,760 being received, what entries would be made by Tanzanite for the first two interest payments, assuming premium or discount amortization on interest dates by (a) the straight-line method and (b) the effective-interest method? (Round to the nearest dollar.)