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SECURITIES HELD TO MATURITY; BOND INVESTMENT; EFFECTIVE INTEREST
KISSES RICH INC, purchased as a log-term investment $80 million of 8% bonds dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10 %. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011 was $ 70 million.
Required:1. Prepare the journal entry to record KISSES RICH's investment on January 1, 2011.2. Prepare the journal entry KISSES RICH'S TO RECORD INTEREST ON JUNE 30, 11 (at the effective rate).3. Prepare the journal entries by KISSES RICH to record interest in the December 31, 2011, balance (at the effective rate).4. At what amount will KISSES RICH INC,report its investment in the December 31,2011. Balance sheet? Why?5. How would KISSES HUG ‘s 2011 statementof cash flowns be affected by this investment?
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