FM Ltd purchased as a long-term investment $ 160 million of 4% bonds  dated January 1 on January 1, 2013

Subject:AccountingPrice:2.86 Bought8

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FM Ltd purchased as a long-term investment $ 160 million of 4% bonds

 dated January 1 on January 1, 2013. Management intends to have the investments available for sale when circumstances warrant. When the company purchased the bonds, management elected to account for them under the fair value option. For bonds of similar risk and maturity the market yield was 6 %. The price paid for the bonds was $ 132 million. Interest is received annually on June 30 and December 31. Interest is recorded at the effective interest method. Due to changing market conditions, the fair value of the bonds on December 31, 2013 was 140 million.     

           

      Required:

     1) Prepare the journal entry to record FM's investment on January 1,2013 (3 pts)              

     2)  Prepare the journal entry by FM to record interest on June 30, 2013 (3 pts)

     3)  Prepare the journal entry by F M to record interest on December 31, 2013 (3 pts)          

     4)  At what amount will F M report its investment in the December 31, 2013

          balance sheet. Prep any entry necessary to achieve this reporting

          objective      ( 3 pts)