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How much bond interest income

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Question - On December 31, Year 7, PCP Ltd. purchased bonds of ACP Ltd. These are 10-year, 5% coupon bonds with a face value of $1,000,000, paying interest twice a year on June 30 and December 31 at a market rate of 5.78%. The bonds will be accounted for at cost/amortized cost.

Required -

1. What was the issue price?

2. How much bond interest income (round to the nearest dollar) should PCP report on June 30, Year 8?

3. How much bond interest income (round to the nearest dollar) should PCP report on December 31, Year 8?

4. On December 31, Year 8 (after collecting interest for December), PCP was experiencing some cash flow problems and sold the bonds. The bonds were available in the secondary market at a yield rate of 4.6%.

5. What would be the amount of the gain or loss? Show calculations for possible part marks. clearly indicate if it is a gain or a loss.

Reference no: EM133154378

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