INVESTMENT IN DEBT SECURITIES (BONDS)

BEBOT Company holds debt securities within a business model whose objective is achieved both by collecting contractual cash flows and selling the debt securities. The contractual cash flows are solely payments of principal and interest on specified dates.

A 5-year 7% P1,000,000 bond was purchased on December 31, 2014 for 1,086,656. The bonds were purchased to yield 5% interest.

The following fair values of the bonds at end of the year are as follows:

December 31, 2015 1,065,000

December 31, 2016 1,075,000

December 31, 2017 1,056,500

December 31, 2018 1,030,000

December 31, 2019 1,000,000

Required:

Case A. Prepare the necessary journal entries from 2014-2019.

Case B. Assuming the bonds were sold on January 2, 2018 at 1,000,000. Prepare the entry on the date of sale.