Donut Corporation purchased Eclair Company's 5-year, $200,000 bond on December 31, Year 1 at an effective yield of 6%. The bond pays interest of 5% annually on December 31. The fair value of the bonds was $194,200 on December 31, Year 2 and $195,750 on December 31, Year 3. 1. Assume Donut will hold the bond to maturity. a. Prepare the journal entry to record the purchase of this bond on December 31, Year 1. b. Prepare any required journal entries related to the bond for Year 2. c. Prepare any required journal entries related to the bond for Year 3. 2. Assume instead that Donut intends to hold the bond for several years but will not hold it to maturity. a. Prepare the journal entry to record the purchase of this bond on December 31, Year 1. b. Prepare any required journal entries related to the bond for Year 2. c. Prepare any required journal entries related to the bond for Year 3. 3. Assume instead that Donut intends to sell the bond as soon as the price is favorable. a. Prepare the journal entry to record the purchase of this bond on December 31, Year 1. b. Prepare any required journal entries related to the bond for Year 2. c. Prepare any required journal entries related to the bond for Year 3. (Yeah, I know it's not likely to be in this category and still own the bond in Year 3, but play along and do the journal entry as if that's what they did.) 4. Now assume that Donut accounted for the bonds as shown in item 2 above. In early January of Year 3, Donut decides to sell the bond as soon as the price is favorable. Record the journal entry, if any, to reflect this change in intention. Donut Corporation purchased Eclair Company's 5-year, $200,000 bond on December 31, Year 1 at an effective yield of 6%. The bond pays interest of 5% annually on December 31. The fair value of the bonds was $194,200 on December 31, Year 2 and $195,750 on December 31, Year 3. 1. Assume Donut will hold the bond to maturity. a. Prepare the journal entry to record the purchase of this bond on December 31, Year 1. b. Prepare any required journal entries related to the bond for Year 2. c. Prepare any required journal entries related to the bond for Year 3. 2. Assume instead that Donut intends to hold the bond for several years but will not hold it to maturity. a. Prepare the journal entry to record the purchase of this bond on December 31, Year 1. b. Prepare any required journal entries related to the bond for Year 2. c. Prepare any required journal entries related to the bond for Year 3. 3. Assume instead that Donut intends to sell the bond as soon as the price is favorable. a. Prepare the journal entry to record the purchase of this bond on December 31, Year 1. b. Prepare any required journal entries related to the bond for Year 2. c. Prepare any required journal entries related to the bond for Year 3. (Yeah, I know it's not likely to be in this category and still own the bond in Year 3, but play along and do the journal entry as if that's what they did.) 4. Now assume that Donut accounted for the bonds as shown in item 2 above. In early January of Year 3, Donut decides to sell the bond as soon as the price is favorable. Record the journal entry, if any, to reflect this change in intention
