Instructions On January 1 2016 Kelly Corporation acquired bo

Instructions On January 1, 2016. Kelly Corporation acquired bonds with a face value of $500,000 for $483841 79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of interest, pay interest sem !annually on June 30 and December 31, are due December 31, 2019, and are being held to maturity

Solution

A) Straight line method of Amortisation :

B) Effective Interest method of Amortisation :

Date	Accounts Titles	Debit $	Credit $
Jan 1 2016	Bond Receivable	500000
	Cash		483841.79
	Discount on Bond Receivable		16158.21
	(being bought of 9%Bonds at discount)
June 30	Cash(500000*9%/2)	22500
	Discount on Bond Receivable	2019.78
	Interest Income		24519.78
	( on straightline = 16158.21 / 4*2 = $2019.78)
Dec 31, 2016	Cash(500000*9%/2)	22500
	Discount on Bond Receivable	2019.78
	Interest Income		24519.78
	( on straightline = 16158.21 / 4*2 = $2019.78)