Refer to the information in E9.3, except assume that Mustafa hopes to make a gain on the
Question:
Refer to the information in E9.3, except assume that Mustafa hopes to make a gain on the bonds as interest rates are expected to fall. Mustafa accounts for the bonds at fair value with changes in value taken to net income, and separately recognizes and reports interest income. The fair value of the bonds at December 31 of each year end is as follows:
Instructions
a. Prepare the journal entry at the date of the bond purchase.
b. Prepare the journal entries to record interest income and interest received and recognition of fair value at December 31, 2020, 2021, and 2022.
c. Digging Deeper Did market interest rates fall as expected? Explain briefly.
Step by Step Answer:
Intermediate Accounting Volume 1
ISBN: 978-1119496496
12th Canadian edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy