Reference no: EM132969676
On January 1, 2021, Windwood Inc. issued bonds with a maturity value of $6 million at 104 when the market rate of interest was 4.5%. The bonds have a contractual interest rate of 5% and mature on January 1, 2031. Interest on the bonds is payable semi-annually on July 1 and January 1 of each year. On January 1, 2021, Summerlynn Ltd, a private company, purchased Windwood Inc. bonds with a maturity value of $2 million to earn interest. Summerlynn Ltd will account for the investment at amortized cost using the effrective interest method to amortize the premium or discount. On December 31, 2021, the bonds were trading at 103. Both companies' year end is December 31.
(Show all calculations for potential part marks. Round all answer to 0 decimal places, e.g. $5,275, omitting cents.)
Problem 1. What amount did Summerlynn Ltd pay for Windwood Inc.'s bonds?
Problem 2. Prepare the journal entry for Summerlynn Ltd (investor) on January 1, 2021
Problem 3. Prepare the journal entries for Summerlynn to record:
3.1. The receipt of interest on July 1, 2021
3.2. The accrual of interest expense on December 31 2021 3.3. The receipt of interest on January 1, 2022
Problem 4. Show how the bonds and any related asset and income statement accounts would be presented in Summerlynn Ltd's Balance Sheet and Income Statement for the year ended December 31, 2021.
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