Redbud Company purchased Hobie Companys 12% bonds with a face amount of $700,000 on July 1, 2016. The 15-year bondsmature on June 30, 2031. For bonds of similar risk and maturity, the market rate of interest was 14%. Interest is paid semiannuallyon June 30 and December 31. a. Determine the price that Redbud will pay for the bonds on July 1, 2016.

b. Prepare the journal entry to record the purchase on July 1, 2016.

c. What is the total amount of interest revenue that Redbud will recognize over the life of the bonds?

The next 3 requirements (d.-f.) assume that Redbud used the straight-line method to amortize the bond discount.

d. Record the interest recognized on December 31, 2016.

e. The fair value of the Hobie bonds on December 31, 2016 is $625,000. Show the amounts reported on Redbuds 2016financial statements if the investment is classified as a held-to-maturity security and is reported on the balance sheet atamortized cost.

Income statement Balance sheet

f. Record the interest recognized on June 30, 2017 and the sale of the bonds on July 1, 2017 for $623,000.

The next 3 requirements (g.-i.) assume that Redbud used the effective interest method to amortize the bond discount.

g. Record the interest recognized on December 31, 2016.

h. The fair value of the Hobie bonds on December 31, 2016 is $625,000. Show the amounts reported on Redbuds 2016 financial statements if the investment is classified as a held-to-maturity security reported at amortized cost.

Income statement Balance sheet

i. Record the interest recognized on June 30, 2017 and the sale of the bonds on July 1, 2017 for $ 623,000.