Smoke Corporation purchased a 9%, $100,000 bond investment in A Company on January 1, 2010. The following
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Question:
Smoke Corporation purchased a 9%, $100,000 bond investment in A Company on January 1, 2010. The following partial amortization table reflects the bond investment on January 1, 2010, with a 5 year term, (due Dec. 31, 2014) when the annual market rate of interest was 10%. Smoke follows IFRS.
Interest is paid to Smoke June 30 and Dec 31. Smoke has an April 30 year end.
Period Ended | Cash Interest Received | Interest Income | Amortized Bond Discount | Carrying Value |
Jan. 1, 2010 (issue date) | --- | --- | 96,139 | |
Jan 1, 2010 - June 30, 2010 | 4500 | 4807 | 307 | 96,446 |
July 1, 2010 - Dec 31, 2010 | 4500 | 4823 | 323 | 96,769 |
Jan 1, 2011 - June 30, 2011 | 4500 | 4839 | 339 | 97,108 |
July 1, 2011 - Dec 31, 2011 | 4500 | 4856 | 356 | 97,464 |
Required:
- the journal entry to record the purchase of the bond by Smoke at Jan 1, 2010.
- the journal entry to accrue interest and adjust the bond investment at April 30, 2011. (round answers to the nearest dollar)
- a classified partial balance sheet at April 30, 2011 to show the amortized cost bond investment and any associated interest. Use a proper three-line title.
- the journal entry(ies) required at June 30, 2011.
- How much total interest income would Smoke record over the entire term of the bond investment?
- If Smoke followed ASPE and used the straight line method to amortize bond discount, how much interest income would Smoke book over the entire term of the bond investment?
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