Calculate price Ithaca would have paid for Cortland bonds

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Question - On January 1, 2021, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $160,000. The Cortland bonds have a stated interest rate of 5%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows:

January 1, 2021 6.0%

June 30, 2021 7.0%

December 31, 2021 8.0%

Required -

1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2021 (ignoring brokerage fees), and journal entry to record the purchase.

2. Appropriate journal entries related to the bond investment during 2021, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.

3. Appropriate journal entries related to the bond investment during 2021, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.

Reference no: EM132950143

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