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Ronnie Corporation bought bonds with have a face amount of $5,000,000 on January 1, 2020. The company paid $4,600,000 plus transaction cost of $142,000 for the bond investment. The business model of the entity in managing the financial asset is to collect contractual cash flows that are solely payment of principal and interest and also to sell the bonds in the open market. The company has not elected the fair value option of measuring financial asset. The bonds will mature on December 31, 2022 and pay 6% interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2020 and 110 on December 31, 2021. The bonds are redeemed at face amount on December 31, 2022.
Problem 1: Prepare the journal entries related to the investment in bonds assuming that the bonds are held as FA @ Amortized Cost (FAAC).
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