Example

ABC Corporation issued ETB 200,000 of 10% term bonds on January 1, 2015, due on
January 1, 2018, with interest payable each July 1 and January 1. The bond was acquired by
XYZ Corporation and both companies accounting period is December 31. The fair value of
the debt investment is ETB 193,000 and 190,000 at December 31, 2015 and 2016
respectively.

Required: Prepare all the necessary entries in the book of ABC and XYX under the following
independent assumptions.
a. Assume Investors require an effective-interest rate of 10%. Prepare all the required
entries (the bond is held for collection by investor).

b. Assume Investors require an effective-interest rate of 12%. Prepare amortization

schedule and all the required entries (the bond is held for collection by investor).

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 c. Assume Investors require an effective-interest rate of 12%. Prepare amortization
schedule and all the required entries (the bond is held for trading by investor).

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 d. Assume Investors require an effective-interest rate of 8%. Prepare amortization
schedule and all the required entries (the bond is held for collection by investor).

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 e. Assume Investors require an effective-interest rate of 8%. Prepare amortization
schedule and all the required entries (the bond is held for trading by investor).

f. Assume the same example above except that the bond dated January 1, 2015, was
issued on May 1, 2015 and effective intersect rate is 10%. Prepare all the required
entries (the bond is held for collection by investor). What will happen if the investor
held its investment for trading?

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 g. Assume the same example above except that the bond dated January 1, 2015, was
issued on May 1, 2015 and effective intersect rate is 12%. Prepare amortization
schedule and all the required entries (the bond is held for collection by investor).
What will happen if the investor held its investment for trading?

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 h. Assume the same example above except that the bond dated January 1, 2015, was
issued on May 1, 2015 and effective intersect rate is 8%. Prepare amortization
schedule and all the required entries (the bond is held for collection by investor).
What will happen if the investor held its investment for trading?

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 i. Assume the bond which was issued on May 1, 2015 with an effective intersect rate of
8% were called by ABC on November 1, 2016. Prepare all the required entries (the
bond was held for collection by investor).

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 j. Assume the bond which was issued on May 1, 2015 with an effective intersect rate of
8% were called by ABC on November 1, 2016 for 99.67. Prepare all the required
entries (the bond was held for trading by investor).

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