On July 1, 2007, Hilltop Company purchased as a long-term investment Essex Company’s 10-year 9% bonds, with a face value of $100,000, for $95,200.  Interest is payable semiannually on January 1 and July 1.  The bonds mature on July 1, 2011.  Hilltop uses the straight-line method of amortization.  What is the amount of interest income and amortization of bond discount that Hilltop should report in its income statement for the year ended December 31, 2007?

A)    4,284 and 240

B)     4,284 and 600

C)     4500 and 240

D)    4500 and 600

Correct ans. D

I didn’t understand how they got this answer.  Interest revenue should be 5,100 (600+4500) and amortization is 600.   Could anyone explain please?

Aiman wrote: On July 1, 2007, Hilltop Company purchased as a long-term investment Essex Company’s 10-year 9% bonds, with a face value of $100,000, for $95,200.  Interest is payable semiannually on January 1 and July 1.  The bonds mature on July 1, 2011.  Hilltop uses the straight-line method of amortization.  What is the amount of interest income and amortization of bond discount that Hilltop should report in its income statement for the year ended December 31, 2007? A)    4,284 and 240 B)     4,284 and 600 C)     4500 and 240 D)    4500 and 600 Correct ans. D I didn’t understand how they got this answer.  Interest revenue should be 5,100 (600+4500) and amortization is 600.   Could anyone explain please?

Your calculation is correct. The problem broke it down into the income (cash recieved=4,500) and discount amortized (600). You knew the right answer; I'm assuming you got confused by the terminology. In this context the income is the cash recieved, not the revenue.

Aiman wrote: On July 1, 2007, Hilltop Company purchased as a long-term investment Essex Company’s 10-year 9% bonds, with a face value of $100,000, for $95,200.  Interest is payable semiannually on January 1 and July 1.  The bonds mature on July 1, 2011.  Hilltop uses the straight-line method of amortization.  What is the amount of interest income and amortization of bond discount that Hilltop should report in its income statement for the year ended December 31, 2007? A)    4,284 and 240 B)     4,284 and 600 C)     4500 and 240 D)    4500 and 600 Correct ans. D I didn’t understand how they got this answer.  Interest revenue should be 5,100 (600+4500) and amortization is 600.   Could anyone explain please?

the iterest is 100000x.09 = 9000/2 because of 1/2 year = 4500

amortization of discount = 4800         &a mp;n bsp; - bond matures in 4 years so 4800/4  = 1200 /2 becasue of july 1 = 600 for amortization on SL BASIS

4500 AND 600 IS THE ANSWER