On January 1, 2015, CASB Incorporated issued $1 million of 10-year, 8% bonds at 102 (this means

Question:

On January 1, 2015, CASB Incorporated issued $1 million of 10-year, 8% bonds at 102 (this means 102% of maturity value). They were sold at a premium because the market interest rate was 7.7%. The bonds pay interest semiannually on June 30 and December 31. On January 1, Densmore Consulting Ltd. purchased $200,000 of CASB bonds at 102 as a trading investment. On July 1, after receiving the bond interest, Densmore Consulting sold its CASB bonds at 103. Both companies have a December 31 year end.

Instructions

(a) Prepare all required entries for Densmore Consulting, the investor, to record the above transactions.

(b) How would the journal entries for Densmore Consulting change if the investment had been purchased with the intent of holding it to maturity?

(d) Comment on the differences in recording that you observe between the investor and the investee?

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...