Q4. On January 1, 2020, Pluto Corp. acquired 8%, $ 100,000 (face value) bonds of Uranus Ltd., to yield 6%. The bonds were dated January 1, 2020, and mature on December 31, 2025, with interest payable each January 1. Pluto intends to hold the bonds to maturity, and will use the FVNI model and the effective-interest method of amortization of bond premium or discount. (20 marks)

Instructions

Prepare the following entries in Plutos books:

a) Acquisition of bonds on January 1, 2020,

b) Year-end adjusting entry at December 31, 2020,

c) Receipt of the first interest payment on January 1, 2021.

Round all values to the nearest dollar.