Ber-trum Limited purchased $ 1,000,000 of Fox Corp. 6.2% bonds, classified as an AC investment. The bonds pay semi- annual interest each 1 May and 1 November. The market interest rate was 6% on the date of purchase. The bonds mature on 1 November 20X11.

1. Calculate the price paid by Bertrum Limited.
2. Construct a table that shows interest revenue reported by Bertrum, and the carrying value of the investment, for each interest period to maturity. Use the effective- interest method.
3. Give entries for 20X7 and 20X8 for Bertrum Limited, including adjusting entries at the year- end, which is 31 December.
4. Assume that Bertrum sold the bonds on 1 February 20X9, for 99 plus accrued interest. Give the entry to record interest revenue to 1 February, and the entry for the sale.
5. Assume instead that the investment is classified as FVTPL. Repeat entries for 20X7, assuming that the fair value of the bond was $ 1,050,000 on 31 December. Contrast the asset valuation using this method to that produced under the amortized cost method.

  • CreatedFebruary 17, 2015
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