On January 1, 2021, Culver Ltd. purchased $400,000 of Gibson bonds with an annual coupon rate of

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Question:

On January 1, 2021, Culver Ltd. purchased $400,000 of Gibson bonds with an annual coupon rate of 5%. The bonds pay semi-annual interest each June 30 and December 31. The market rate of interest on January 1, 2021 was 6%. The bonds mature on December 31, 2026. Culver Ltd. has a December 31 year end.

Required:

a. Calculate the price paid by Culver for this bond

b. Assume that management determines these bonds will be held until maturity at the end of 2026, with the proceeds being used to retire maturing debt. Prepare all journal entries required for the years 2021 and 2022. (Round dollar amounts to zero decimal places).

c. Independent from part (b) above, now assume that management determines the investment in the bonds is speculative in nature and will be held for trading purposes. Fair value of the Gibson bonds was $385,000 at December 31, 2021 and was $391,500 at December 31, 2022. Prepare all journal entries required for the years 2021 and 2022. Culver does NOT recognize interest income separately from other investment income for its bond trading portfolio. (Round dollar amounts to zero decimal places).

d. What amount would the bond be shown at on the Statement of Financial Position for 2021 and 2022, if it were (i) held to maturity, or (ii) held for trading purposes?