Question: Amortized Cost model for bond investment
On January 1, 2015, Phantom Corp., acquires $321,000 of Spider Products, Inc. 9% bonds at a price of $305,311. The interest is paid each December 31, and the bonds mature on December 31, 2017. The investment will provide Phantom Corp. with a 11% yield. Phantom Corp. applies IFRS and accounts for this investment using the amortized cost model.
Required:
a) Prepare three-year bond amortization schedule.
b) Prepare the journal entry to record interest received and interest income on December 31, 2016.
c) Prepare the journal entries to record interest received and interest income on December 31, 2017, and the maturity of the bond.
d) If Phantom sold the bond on December 31, 2016, for $283,100 instead of holding it to maturity, prepare the entry for the disposal of the investment. Assume 2016 interest received and interest income has already been recorded.