On December 31, 2017, PCP Ltd. purchased bonds of ACP Ltd. The bonds mature on December 31, 2022, and have a maturity value of $1,000,000. The stated interest rate on the bonds is 4% (yearly rate). Interest is paid each June 30 and December 31. The bonds were purchased to yield 3.4% (yearly rate). The bonds will be accounted for as FVTPL.

a) What was the purchase price of the bonds (to the nearest dollar)?

b)

1. i) How much bond interest income (round to the nearest dollar) should PCP report on June 30, 2018?

2. ii) How much bond interest income (round to the nearest dollar) should PCP report on December 31, 2018?

c) On December 31, 2018, the bonds were available in the secondary market at a yield rate of 3.6%.

1. i) Should PCP report an unrealized gain or loss, a realized gain or loss, or no gain or loss? Explain why.

2. ii) Regardless of your answer to i), assume they should report some kind of gain or loss. What would be the amount of the gain or loss? Show calculations for possible part marks. Please highlight your final figure in yellow, and clearly indicate if it is a gain or a loss.