Question 1 - Using the following information, prepare journal entries for the year 2014 and indicate how ABC should report its investment in its year end financial statements:
- The investment is considered Held to maturity.
- On July 1, 2014 ABC purchased $4,000,000 of XYZ's 8% bonds, due on July 1, 2021.
- The bonds, which pay interest semiannually on January 1 and July 1, were purchased for $3,500,000 to yield 10%.
- The fair value at December 31, 2014 is $3,604,000.
Question 2 - Using information on Question 1, prepare journal entries for the year 2014 but assuming the investment is -considered Trading securities. Also, indicate how ABC should report its investment in its yearend financial statements.