On September 30, 2018, Rittex, Inc., purchased 5% bonds of McPhee Corporation at 97 as a long-term,

Question:

On September 30, 2018, Rittex, Inc., purchased 5% bonds of McPhee Corporation at 97 as a long-term, held-to-maturity investment. The maturity value of the bonds will be $46,000 on September 30, 2023. The bonds pay interest on March 31 and September 30. Rittex’s fiscal year end is December 31.

Requirements

1. What method should Rittex use to account for its investment in the McPhee Corp. bonds?

2. Using the straight-line method of amortizing the discount on bonds, journalize all of Rittex’s transactions on the bonds for 2018.

3. Show how Rittex would report everything related to the bond investment on its balance sheet at its year-end, December 31, 2018.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...

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