Financial institutions hold large quantities of bond

investments Suppose Sun #6690

Financial institutions hold large quantities of bond investments Suppose Sun

Financial institutions hold large quantities of bond investments. Suppose Sun Life Financial
purchases $500,000 of 6% bonds of General Components Corporation for 88 on January 1,
2017, when the effective interest rate is 8%. These bonds pay interest on January 1 and July 1
each year. They mature on January 1, 2025. At December 31, 2017, the market price of the
bonds is 90.

Requirements

1. Journalize Sun Life's purchase of the bonds as a long-term investment on January 1, 2017
(to be held to maturity), receipt of cash interest and amortization of the bond investment on July
1, 2017, and accrual of interest revenue and amortization at December 31, 2017. Use the
effective-interest method for amortizing the bond investment.

2. Show all financial statement effects of this long-term bond investment on Sun Life's balance
sheet and income statement at December 31, 2017.

Financial institutions hold large quantities of bond investments Suppose Sun

ANSWER
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