Question

investments. part b only

E9.5 (LO 3) (FV-NI Investment in Bonds) Refer to the information in E9.3, except assume that Mustafa hopes to make a gain on the bonds as interest rates are expected to fall. Mustafa accounts for the bonds at fair value with changes in value taken to net income, and separately recognizes and reports interest income. The fair value of the bonds at December 31 of each year end is as follows: 2020 2021 2022 $534,200 $515,000 $513,000 2023 2024 $507,000 $500,000 Instructions b. Prepare the journal entries to record interest income and interest received and recognition of fair value at December 31, 2020, 2021, and 2022.

Answer 1

SOLUTION:

Date	Particulars	Debit	Credit
31-Dec-20	Cash	60,000.00
	FV-NI Investments		6,209.26
	Interest Income		53,790.74
	FV-NI Investments	2,501.86
	Unrealized Gain or Loss		2,501.86
	[$534,200 – ($537,907.40 - $6,209.26)] = $2,501.86
31-Dec-21	Cash	60,000.00
	FV-NI Investments		6,830.19
	Interest Income		53,169.81
	FV-NI Investments	12,369.81
	Unrealized Gain or Loss		12,369.81
	[($534,200 – $6,830.19) - $515,000] = 12,369.81
31-Dec-22	Cash	60,000.00
	FV-NI Investments		7,513.20
	Interest Income		52,486.80
	FV-NI Investments	5,513.20
	Unrealized Gain or Loss		5,513.20
	[$513,000 – ($515,000 - $7,513.20)] = 5,513.20