1. Carow Corporation purchased, as a held-to-maturity investment, $68,300 of the 8%, 7-year bonds of Harrison, Inc. for $76,015, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow’s journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used.
2. On January 1, 2014, Carow Corporation purchased 30% of the common shares of Edwards Company for $248,000. During the year, Edwards earned net income of $99,200 and paid dividends of $24,800. Prepare the entries for Carrow to record the purchase and any additional entries related to this investment in Edwards Company in 2014.
3. Carpw Company purchased, as an available-for-sale security, $86,300 of the 8%, 5-year bonds of Chester Corporation for $79,757, which provides an 10% return.
Prepare Carows journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $81,985.