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Calculate the purchase price of the bonds

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Reference no: EM133061172

Question - On January 1, 2021, Classic Motifs Co. purchased 7% bonds with a face value of $1,100,000 in New Age Designs Inc. Interest is paid semi-annually, on January 1 and July 1 of each year.

The bonds were purchased to generate a return at an effective rate of interest of 6%.

The bonds mature on January 1, 2027.

Classic Motifs Co. uses the effective interest method and the amortized cost method to account for these bonds.

Classic Motifs Co. has a year end of December 31.

Required -

a. Calculate the purchase price of the bonds, and prepare the journal entry by Classic Motifs to record the purchase.

b. Make a bond amortization schedule for the first 3 interest payments for this bond. Round all amounts to 2 decimal places.

c. Make the journal entries required by Classic Motifs to account for the bonds on each of the following dates: July 1, 2021 and December 31, 2021.

d. Assume that the bond is sold at 101 on July 1, 2022. Record the journal entry for the sale of the investment by Classic Motifs.

e. Assume that Classic Motifs Co. follows ASPE. Is there any other method that the company could use to amortize the bond premium or discount? If so, specify the name of the method.

Reference no: EM133061172

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