Question 3: Accounting for Bonds (14 points)

On July 1, 2014 West Corporation issued bonds that mature in three years. The bonds have a face value of $100,000 and annual coupon payments of $15,000 on June 30 each year. The market rate on July 1, 2014 is 10% (One thing to consider here is that the coupon payments do not coincide with the close of the fiscal year).

1. Assuming that the fiscal year ends on December 31, show all journal entries for West Corporation throughout 2014 related to this bond (4 points).

2. Assuming that the fiscal year ends on December 31, show all journal entries throughout 2015 for West Corporation related to this bond (6 points).

3. Record the journal entry for only 2014 for this bond from the perspective of the investor instead of the borrower. Assume that the bond is classified as available for sale and there is no change in the market value at the end of 2014 (4 points).