Gamma Corp invested in a three year 100 face value
Gamma Corp. invested in a three-year, $ 100 face value 6% bond, paying $ 105.55. At this price, the bond will yield a 4% return. Interest is payable annually.
(a) Prepare a bond premiun1 amortization table for Gamma Corp. assuming Gamma uses the effective interest method required by IFRS.
(b) Prepare journal entries to record the initial investment, the receipt of interest and recognition of interest income in each of the three years, and the maturity of the bond at the end of the third year.
(c) Assuming Gamma Corp. applies ASPE and has chosen to use the straight-line method of amortization, determine the an10unt of premium that is amortized each year.
(d) Under the assumption in (c), prepare journal entries to record the initial investment, the receipt of interest and recognition of interest income in each of the three years, and the maturity of the bond at the end of the third year. (e) Compare the total interest income under the two methods over the three-year period.
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