On 1 January 2020, ABC bought a USD 150,000 5% bond for USD 145,000, incurring issue costs of USD 2,000. Interest is received in arrears. The bond will be redeemed at USD 151,059 on 31 December 2022. The effective rate of interest is 7%.The fair value of the bond was as follows:31/12/20 USD 160,00031/12/21 USD 154,000Required:Pass Journal Entries and provide extracts of Financial Statements, with calculations for how the bond will have been accounted for if:a) ABC planned to hold the bond until the redemption date. b) ABC planned to trade the bond in the shortterm, selling it for its fair value on 1 January 2021. Answer both the subparts asap .

Bonds are the financial instruments issued by the company in order to raise funds from outside and…

Answered: On 1 January 2020, ABC bought a USD…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On 1 January 2020, ABC bought a USD 150,000 5% bond for USD 145,000, incurring issue costs of USD 2,000. Interest is received in arrears. The bond will be redeemed at USD 151,059 on 31 December 2022. The effective rate of interest is 7%.

The fair value of the bond was as follows:

31/12/20 USD 160,000
31/12/21 USD 154,000

Required:

Pass Journal Entries and provide extracts of Financial Statements, with calculations for how the bond will have been accounted for if:

a) ABC planned to hold the bond until the redemption date.

b) ABC planned to trade the bond in the shortterm, selling it for its fair value on 1 January 2021.

Answer both the subparts asap .

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