Chapter 9
Investments
439
AP-3A (
1
2
)
Feng Inc. is planning to purchase $250,000 worth of six-year bonds issued by George
Company, a publically traded company in Ontario, on January 1, 2016 for $236,782. The
interest rate of the bonds is 3% annually; payments are made semi-annually on June 30
and December 31 every year. The interest rate paid by similar bonds is at 4% per year in the
market. Feng Inc. has a December 31 year-end.
Required
a) If Feng’s investment goal is to hold the bonds to collect interest revenue, which valuation
method should be used in recording these bonds?
b) Prepare journal entries for the bonds’ acquisition, the first and last interest payments and
retirement of the bonds on January 1, 2022.
Date
Account Title and Explanation
Debit
Credit
