Question 1: On January 1, 2013, ABC Corp. sold 8% bonds with a face amount of $320 million for $300 million. The market yield for bonds of similar risk and maturity was 9%. Upon issuance, ABC elected the option to report these bonds at their fair value. On June 30, 2013, the fair value of the bonds was $310 million as determined by their market value on the NASDAQ. Will ABC report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease?
Question 2: On May 1, 2013, AAA Corp. purchased parts from XYZ Corp. In payment for the $48,000 purchase, ABC issued a 1 year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%%.
(1) What entry will AAA make to record the May 1, 2013 purchase of the parts?
(2) What entry will AAA make to record the 1st installment payment on May 31, 2013?
(3) How much interest expense will ABC report in its income statement for its fiscal year ended 06/30/2013?