Investments in Held-to-Maturity Securities
Response to the following problem:
On January 1, 2009, Eurowest Company purchased a $25,000, 12% bond at 104 as a longterm investment. The bond pays interest annually on each December 31 and matures on December 31, 2011.
Assuming straight-line amortization, answer the following questions:
Required:
1. What will be the net amount of cash received (total inflows minus total outflows) from this investment over its life?
2. How much cash will be collected each year?
3. How much premium will be amortized each year?
4. By how much will Investment in Held-to-Maturity Securities decrease each year?
5. How much revenue will be reported on the income statement each year relating to this security?