The following events pertained to First Capital Company.

Required
1. Calculate the fair value of the bond at the following dates:

(a) 31 December 20x0

(b) 31 December 20x1

(c) 31 December 20x2 2. Prepare journal entries to record the investment in the fixed rate bond from 31 December 20x0 to 31 December 20x2.

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31 December 20x0 31 December 20x1 31 December 20x2 Purchased a fixed rate bond with a coupon interest rate of 8.5% per annum and a nominal value of $1,000,000. The bond matured on 31 December 20x5. Market interest rate for a similar bond on 31 December 20x0 was 8% per annum. The business model is to collect contractual cash flows and for sale. Market interest rate for the bond fell to 6%. First Capital Company made a fair value adjustment of the bond. Market interest rate for the bond fell to 5%. First Capital Company sold 40% of the bond. First Capital Company changed the business model for the remaining bonds held to collect contractual cash flows only. Assume interest is received annually on 31 December.