atton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2021, paying $1,410,375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2021, Patton Company should debit its Debt Investments account for the Scott Company bonds by and credit its Interest Revenue account by .

Patton Company should debit its Debt Investments account for the Scott Company bonds by $2,571  and credit its Interest Revenue account by $155,283

Explanation:

On July 1 2021, Patton Company should increase its Debt Investments account for the Scott Company bonds by =

Amount of discount amortized  = Interest revenue - Interest received

= ($1,410,375 × 11% × 6/12) - ($1,500,000 × 10% × 6/12)

= $77,571 - $75,000

= $2,571

Interest revenue on 31 December 2021 = ($1,410,375 + $2,571) × 11% × 6/12

= $77,712

For the year ended December 31, 2021, Patton Company should report interest revenue from the Scott Company bonds of = $77,571 + $77,712 = $155,283

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