Reference no: EM133178633
Question - Part 1 - ?On January 1, 2022 Fescue, Corp. purchase $100,000 of Bermuda Corporation's debt securities. The debt securities mature on December 31, 2031 and are zero coupon bonds (stated rate = 0%). The debt securities were issued when the market rate was 7.2% and classified as held-to-maturity.
Required -
1. ?Prepare the journal entry that Fescue, Corp. would make for the purchase of the Bermuda bonds.
2. ?Prepare the Dec. 31, 2022 entry that Fescue, Corp. would make for these bonds, assume that the bonds are trading at $52,000.
Part 2 - ?On January 1, 2022 Fescue, Corp. purchases $500,000 of Centipede Inc.'s bonds. The bonds pay interest annually on Dec. 31 each year. The bonds carry a stated interest rate of 4.8% and were issued when the market rate was 5.2%. The bonds mature on December 31, 2036. Management has determined that the investment will be classified as trading. On December 31, 2022 the fair market value of the bonds was $497,000. On December 31, 2023 the market value was $489,000.
Required -
1. Make the necessary journal entries for 2022 and 2023.
2. Calculate the market rate of interest as of December 31, 2023.
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