Kaki Company acquired 6,000,000 12% bonds on Feb. 1, 2020 for 5,486,000 to be held as financial assets at amortized cost.

The bonds pay interest annually on Feb. 1 and mature on Feb. 1, 2024. The bonds are acquired to yield a 15% effective rate.

The fiscal period for the entity is the calendar period. Amortization is done following the effective interest method.

On May 1, 2021, Kaki Company sold all the bonds at 105 plus accrued interest.

Requirements:

1. Compute the carrying amount of Investment in Bonds on Feb 1, 2020
2. Compute the cash paid on Feb 1, 2020
3. Compute the premium/discount over the life of the investment
4. If the company uses the straight line method of amortization, compute the premium/discount amortization for the fiscal period ended on Feb 1, 2021
5. If the company uses the straight line method of amortization, compute the interest income for the fiscal period ended on Feb 1, 2021
6. If the company uses the straight line method of amortization, compute the carrying amount of investment in bonds on Feb 1, 2021
7. If the company uses the straight line method of amortization, compute the gain/loss on sale of investment on May 1, 2021.
8. If the company uses the effective interest method of amortization, compute the premium/discount amortization for the fiscal period ended on Feb 1, 2021
9. If the company uses the effective interest method of amortization, compute the interest income for the fiscal period ended on Feb 1, 2021
10. If the company uses the effective interest method of amortization, compute the carrying amount of investment in bonds on Feb 1, 2021
11. If the company uses the effective interst method of amortization, compute the gain/loss on sale of investment on May 1, 2021.

Answer rating: 100% (QA)

To solve the given requirements we need to calculate various values related to the investment in bonds Lets go through each requirement step by step 1 Compute the carrying amount of Investment in Bond... View the full answer