GBC Corp
Subject:AccountingPrice:3.86 Bought12
GBC Corp. bought a $10,000 8% bond from Humber Inc. on January 1, 2019. It matures on December 31, 2021 Interest rates in the market are currently 10% and it is management's intent to hold this long term investment to maturity
Required
a Calculate the present value of this bond investment
b Prepare an amortization table for the life of this bond
c Prepare the journal entries required to record:
i) the bond purchase ii) the annual interest payments iii) The repayment at the end
d Now assume that the bond was acquired as a FV-NI investment
The Fair Market Value(FMV) at the end of each year was:
2019 $9,900 2020 $9,600
i) Prepare the journal entries required at the end of each year to reflect the gain or loss due to the FMV process using a Tee (ledger) account to organize your answer.
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PV of Cash Flows is computed as the PV of the interest payments (10000*0.08) that will be received in the future annually thus using the PV of Ordinary Annuity, 10% at 3 years.
The PV of 1, 10% for 3 years is used in Principal payments since it will paid once, which is at the end of 3 yrs.
The Present Value is also an indicator of Fair Value at the beginning of the investment thus used as Fair Value in FVNI. Increases are recognized in Fair Value Adjustment account and Unrealized Gain account
Please see the attached file for the compete solution
