Question 1 Culver Corporation purchased $68,900 of 5-year, 8% bonds of Hu Inc. f

Question

Question 1 Culver Corporation purchased $68,900 of 5-year, 8% bonds of Hu Inc. for $66,174 to yield an 996 return, and classified the purchase as an amortized cost method investment. The bonds pay interest semi-annually. Your answer is partially correct. Try again. Assuming Culver Corporation applies IFRS, prepare its journal entries for the purchase of the investment and the receipt of semi-annual interest and discount amortization for the first two interest payments that will be received. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Bond Investment at Amortized Cost 68900 Cash 68900 (To record the purchase of the investment) Cash 5294 Bond Investment at Amortized Cost 662 Interest Income 5956 (To record the receipt of the semi-annual interest payment)

Explanation / Answer

Bond investment at amortized cost 66174

Cash 66174

First, we will figure out the cash recived. This is an 8% bond where the interest is paid twice a year. Interest is calculated off the face value of the bond.

68900 * 8% * 6/12 = 2756

Since it is a 5-year bond with semiannual payments, there are 10 interest payments over the life of the bond. We can take $2726 divided by 10 payments or $272.6. This is the amount of Bond investment at amortized cost.

so,

Cash 2756

Bond investment at amortized cost 272.6

Interest Income 3028.6

(For int payment)

Cash 2756

Bond investment at amortized cost 272.6

Interest Income 3028.6

(For int payment)

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