On January 1, 2020, Monty Company purchased 12% bonds having a maturity value of $390,000, for $419,567.77. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Monty Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category. Prepare the journal entry at the date of the bond purchase. Prepare a bond amortization schedule. Prepare the journal entry to record the interest revenue and the amortization at December 31.

Debt Securities                    390,000 debit

Premium on Debt Securities 29,567.77 debit

         Cash                                     419,567.77 credt

--to record the purchase--

Cash     46,800 debit

premium on Dbet Securities 4,843.22 credit

Interest revenue 41,956.78 credit

Explanation:

The diference between price and face value will be the discount or premium.

Discount when we pay lower than face value and premium when paying above.

To solve for the interest amortization we will multiply the carrying value timesthe market rate of 10%

Forthe first year it will be

419,567.77 x 0.1 = 41,956.78 revenue

cash proceeds 390,000 x 0.12 = 46,800

The difference will be an amortization on the premium

46,800 - 41,956.78 = 4843.22

the correct answer is b.)

turnover

the amount of money taken by a business in a particular period.