DEBT SECURITIES

1. Using the following information, prepare journal entries for the year 2018 and indicate how ABC should report its investment in its year-end financial statements:

• the investment is considered Held to maturity.
• On July 1, 2018, ABC purchased $4,000,000 of XYZs 8% bonds, due on July 1, 2024.
• The bonds, which pay interest semiannually on January 1 and July 1, were purchased for $3,645,470 to yield 10%.
• The fair value at December 31, 2018, is $3,604,000.

2. Using information on problem 1, prepare journal entries for the year 2015 but assuming the investment is considered Trading securities. Also, indicate how ABC should report its investment in its year-end financial statements.