Using the data presented in E16-4, assume that Imperial Inc. purchased the bonds to trade.
In E16-4
On July 1, 2014, Imperial Inc., a public company, purchased $500,000 of Acme Corp. 10-year, 4% bonds for $461,000 to earn interest. The bonds had a market interest rate of 5%. The bonds pay interest semiannually on January 1 and July 1. Imperial Inc. has a December 31 year end. At December 31, 2014, the bonds are trading at 96.
Instructions
(a) Record the purchase of the bonds on July 1, 2014.
(b) Record any adjusting journal entries that are required at December 31, 2014.
(c) Indicate how the investment is presented on Imperial Inc.'s December 31, 2014, balance sheet.
(d) Record the receipt of the first interest payment on January 1, 2015.
(e) Assume the bonds are sold on the market at 97 on July 1, 2015, after the semi-annual interest payment has been received and recorded. Record the sale of the bonds.
(f) Explain why Acme Corp. will not record an entry for the bonds sold by Imperial on July 1, 2015.