PROBLEM 1

The following information relates to the debt investments to Mayor Company on 2020.

1. On January 1, Purchased 100, $1,000 Mirror Corp. 10% bonds for $100,000 (at 100). Interest is payable on July 1 and January 1.
2. On April 1, Purchased 80, $1,000 Bondi Inc 9% bonds for $80,000 (at 100). Interest is payable on April 1 and October 1.
3. On July 1, semiannual interest is received.
4. On October 1, semiannual interest is received.
5. On October 1, Sold 30 Bondi Inc. bonds for $34,000 after receiving the interest due.
6. On December 31, accrued semiannual interest on Mirror Corp. and Bondi Inc bonds.
7. On December 31, the fair value of Mirror Corp. and Bondi Inc bonds are 102 and 101, respectively (102 means fair value=102% of par value). Mayor Company doesnt have debt investment before 2020.

Instructions

1. Prepare any journal entries you consider necessary, including year end entries (December 31), assuming these investments are managed to profit from changes in market interest rates (held for trading). Mayor Company doesnt have debt investment before 2020.
2. Prepare a partial statement of financial position showing the Investment account at December 31, 2020.
3. If Mayor Company purchase the debt investment to collect the contractual cash flow (held the debt investment to maturity), explain how the journal entries would differ from those in part (a).