A11-9

On 1 May 20X7, Bertrum Ltd. purchased $1,000,000 of Fox Corp. 6.2% bonds. The bonds pay semi-annual interest each 1 May and 1 November. The market interest rate was 6% on the date of purchase. The bonds mature on 1 November 20X11. Required:

1. Calculate the price paid by Bertrum.

2. Construct a table that shows interest revenue reported by Bertrum, and the carrying value of the investment, for each interest period to maturity. Use the effective-interest method.

3. Assuming the bond is classified as AC, prepare the entries for 20X7 and 20X8 for Bertrum, including adjusting entries at the 31 December year-end.

4. Assuming that the bond is classified as AC and that Bertrum sold the bonds on 1 February 20X9, for 99 plus accrued interest. Give the entry to record interest revenue to 1 February, and the entry for the sale