Problem 1 (12%)

Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are managed as trading securities.

31/12/2018 31/12/2019

Amortized cost 520,000 555,000

Fair value 510,000 560,000

Instructions:

a) Prepare the adjusting entries to record the bond at fair value at December 31, 2018 and 2019. The fair value adjustment account has a credit balance of $2,500 prior the adjustment of year 2018.

______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

b) Assume the maturity date is December 31, 2019, record the collection of the principal amount of the bonds at maturity.

__________________________________________________________________________________________________________________________________________________________________________________________________________________