CHAPTER 12

REPORTING AND ANALYZING INVESTMENTS

Summary of Question TYPEs by LEARNING Objective, Level of difficulty, BLOOM’S TAXONOMY, CPA CODES, and AACSB Codes

LOD: E = Easy M = Medium H = Hard

Bloom’s: AP = Application C = Comprehension K = Knowledge

CPA: F = Financial Reporting

AACSB: AN = Analytic

*This topic is dealt with in an Appendix to the chapter.

Summary of Question TYPEs by LEARNING Objective, Level of difficulty, BLOOM’S TAXONOMY, CPA CODES, and AACSB Codes

(Cont’d)

LOD: E = Easy M = Medium H = Hard

Bloom’s: AN = Analysis AP = Application C = Comprehension K = Knowledge

CPA: C = Communication E = Professional and Ethical Behaviour F = Financial Reporting

AACSB: AN = Analytic C = Communication E = Ethics

*This topic is dealt with in an Appendix to the chapter.

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Note: TF = True-False MC = Multiple Choice Ma = Matching

Ex = Exercise SAE = Short-Answer Essay CP = CPA Questions

*This topic is dealt with in an Appendix to the chapter.

CHAPTER LEARNING OBJECTIVES

1. Identify reasons to invest, and classify investments. Corporations generally purchase investments in debt and equity securities for a variety of reasons. They may purchase investments for a strategic reason in order to influence or control the operations of another company. Alternatively, companies may purchase investments for non-strategic reasons. Non-strategic debt investments include those held for trading purposes or those held to receive interest payments until maturity. Non-strategic equity investments include those held for trading purposes or those held to earn dividend income. While strategic equity investments are held for the long term, companies may hold non-strategic equity investments for any length of time.

2. Account for non-strategic investments. Non-strategic investments include investments in debt and equity securities. There are four major models that we can use to account for some of these investments. (1) The fair value through profit or loss model reports debt or equity investments at their fair values on the statement of financial position, while all related investment income, such as interest, dividends, and both unrealized and realized gains and losses, are reported in the statement of income under other revenues and expenses. (2) The fair value through other comprehensive income model is very similar to the above except that companies report both unrealized gains and losses in other comprehensive income rather than on the statement of income. Depending on whether the investment is a debt or equity security, companies will treat realized gains and losses and previously recorded unrealized gains and losses in different ways under this model, which are covered in more advanced accounting courses. (3) The amortized cost model applies to debt investments that have premiums or discounts amortized over time. Under this model, companies record interest income in the statement of income, along with the effect of any premium or discount amortization. Users of this model do not adjust the investment to reflect fair value and consequently, they do not record unrealized gains or losses. Any realized gains and losses arising on the sale of the investment are recorded in the statement of income. (4) The cost model is identical to the amortized cost model but would be used on an equity investment rather than a debt investment and would not require amortization because discounts and premiums do not arise on equity investments.

3. Account for strategic investments. An investor company makes a strategic investment to influence or control an investee. An investor usually achieves significant influence when acquiring at least 20% of the investee’s shares but less than 50% when control is achieved. However, qualitative factors (board representation, participation in investee’s decisions, material transactions with investee, interchange of managerial personnel, and provision of technical information) are the major criteria used to determine the existence of significant influence. If the investor is not able to exert significant influence over the investee company, it will account for the investment as if it were a non-strategic equity investment. When significant influence exists, the investor will use the equity method to account for the investment. The equity method records investment income from an associate (a significantly influenced investee) based on the investor’s proportion of the associate’s income. If the investor receives dividends from the associate, it will reduce the carrying amount of the investment account because that investee’s equity has fallen.

When the investor obtains control (usually more than 50% of the shares) of the investee, the investee is a subsidiary whose financial statements are normally consolidated into those of the parent company.

4. Explain how investments are reported in the financial statements. Realized gains and losses, unrealized gains and losses, dividend income, and interest income are shown in the statement of income as other revenues and expenses, with two exceptions. The first exception arises when using the equity method, where investors do not record dividend income in the statement of income but instead record it as a reduction to the investment account. The second exception applies to investments accounted for under the fair value through OCI model, where investors report unrealized and realized gains and losses in OCI rather than in the statement of income. (Realized gains and losses are then reclassified out of OCI, but this treatment goes beyond the scope of this textbook.)

Under both IFRS and ASPE, non-strategic equity investments held for trading purposes are shown in the current assets section of the statement of financial position using the fair value through profit or loss model. If a non-strategic equity investment is not held for trading, it may be shown as a long-term investment on the statement of financial position and can be accounted for using the fair value through OCI model under IFRS. (An option to use fair value through profit or loss is available.) Because ASPE does not report other comprehensive income, use of the fair value through OCI model is not available under ASPE. Companies will usually show debt investments held to earn interest income until maturity as current assets or long-term investments, depending on their maturity date. Under both IFRS and ASPE, investors will use the amortized cost model for these debt investments, although under IFRS, there is an option to use fair value through profit or loss if the investment is also held for trading purposes. Under ASPE or IFRS, if an investor cannot measure the fair value of an investment, it will use the cost model for equity investments or the amortized cost model for debt investments.

Investors will report strategic investments in significantly influenced associates as long-term investments. When accounting for these investments under IFRS, investors must use the equity method. However, under ASPE, investors can choose to use either the equity method or the fair value through profit or loss model if the investor can determine fair value. If fair value is not known, the investor can use the equity method or the cost model.

Under IFRS, when a company has a strategic investment in a subsidiary, it must prepare consolidated financial statements. When performing a consolidation, the investment account is replaced by the specific assets and liabilities of the subsidiary. Under ASPE, parent companies can choose to use consolidation or, if the fair value of the investment is known, they can account for the investment using the fair value through profit or loss model or the equity method. If the parent company does not know the fair value of the investment, then in addition to consolidating financial statements, the company could choose instead to account for the investment in the subsidiary using either the cost model or the equity method.

Changes in share capital, retained earnings, and accumulated comprehensive income are shown in the statement of changes in equity. The ending balances in each of these categories are equity accounts presented in the shareholders’ equity section of the statement of financial position. Companies must prepare a closing journal entry to close other comprehensive income at the end of the year into accumulated other comprehensive income.

5. Compare the accounting for a bond investment and a bond payable (Appendix 12A). The accounting for a bond investment is similar to the accounting for a bond payable in that any premium or discount is amortized using the effective-interest method of amortization. Companies using ASPE can choose to use the straight-line method instead if the results do not materially differ from the effective-interest method. Most companies ignore the accounting for premium and discount amortization for bonds held for trading purposes and would normally account for these bonds using the fair value through profit or loss model.

TRUE-FALSE STATEMENTS

1. Corporations purchase investments in debt or equity securities for the income tax write-off.

2. Strategic investments are debt or equity securities that are usually purchased to generate investment income.

3. Non-strategic investments can be classified as short or long-term investments.

4. Debt investments earn interest income over time and the borrower has an obligation to return the original amount of the investment on a fixed maturity date.

5. Non-strategic investments that are held for the purpose of earning capital gains are called Trading Investments.

6. The degree of influence determines how a strategic investment is classified.

7. Preferred shares are often purchased as strategic investments.

8. Equity securities are always classified as long-term investments.

9. At acquisition, non-strategic investments are recorded at purchase cost.

10. Under both the fair value model and the amortized cost model, investments are adjusted upwards or downwards to reflect their fair value at year end.

11. No unrealized gains and losses are recorded when using the amortized cost model.

12. Using the fair value through profit or loss model, both unrealized and realized gains and losses would be reported in the statement of income.

13. Only debt investments can be accounted for using the fair value through other comprehensive income model.

14. If the fair value through other comprehensive income model is used, then unrealized gains and losses are not used to evaluate management.

15. When an investee can be significantly influenced, it is known as an associate.

16. Dividends received on investments are accounted for in the same way under the fair value through profit or loss model cost and the equity method.

17. Unless there is evidence to the contrary, an investor owning at least 20% of the shares of an investee is assumed to have significant influence.

18. Using the fair value through profit and loss model of accounting for an equity investment, the journal entry to record the receipt of dividends involves a credit to Dividend Income.

19. At acquisition, the investment account is debited for the cost of the shares under both the cost and equity methods of accounting for strategic investments.

20. Under both IFRS and ASPE, investors can use either the cost model or the equity method for significantly influenced investments.

21. Investments in associates are reported as current assets on the statement of financial position at fair value.

22. Both equity and debt investments are reported as current assets on the statement of financial position at fair value.

23. Realized gains and losses are always reported in the statement of income.

24. Debt investments held to earn interest income are reported at amortized cost in the statement of financial position.

25. Consolidated financial statements are appropriate when one company has significant influence over another company.

*26. When an investment in bonds is made, the investment account is debited for the face value of the bond less any premium or plus any discount.

*27. Premiums and discounts must be amortized on all bond investments.

*28. Short-term investments in bonds are accounted for using the fair value through profit or loss model.

*29. If there is a bond premium on a long-term bond investment, the carrying amount of the investment is reduced by the amount of the amortization.

*30. Interest income is calculated by multiplying the carrying amount of the bond investment by the market rate of interest when the bond was purchased prorated by the portion of the payment period covered during the year.

*31. Under both IFRS and ASPE, the investor must use the effective-interest method to amortize bond premium or discount.

ANSWERS TO TRUE-FALSE STATEMENTS

MULTIPLE CHOICE QUESTIONS

32. Securities that can be purchased for strategic purposes

(a) include only equity securities to influence relationships between companies.

(b) include only debt investments.

(c) include both equity securities and debt investments.

(d) exclude both equity securities and debt investments.

33. When investing excess cash for short periods of time,

(a) corporations generally invest in equity securities.

(b) corporations generally invest in debt securities that have both high liquidity and high risk.

(c) corporations generally invest in debt securities that have high risk and low liquidity.

(d) corporations generally invest in debt securities that have low risk and high liquidity.

34. Corporations invest in other companies for all the following reasons except to

(a) use excess cash until needed.

(b) generate investment revenue.

(c) meet strategic goals.

(d) influence the market value.

35. When investing excess cash for short periods of time, corporations generally invest in any of the following, except

(a) money-market funds.

(b) bankers’ acceptances.

(c) equity securities.

(d) treasury bills.

36. Which of the following would never be classified as a long-term investment?

(a) strategic investments

(b) trading investments

(c) investments in associates

(d) bonds with a ten-year maturity

37. Debt investments include all the following except

(a) common shares.

(b) guaranteed investment certificates.

(c) treasury bills.

(d) bonds.

38. Which one of the following would not be classified as a non-strategic investment?

(a) money-market securities

(b) idle cash in a chequing account

(c) trading investments

(d) long-term bonds

39. Trading Investments are all of the following except

(a) debt or equity securities.

(b) securities purchased to generate a net income from short-term price fluctuations.

(c) securities held for the purpose of earning capital gains.

(d) strategic investments.

40. All the following statements concerning strategic investments are true, except

(a) they include trading investments.

(b) they are purchased for the strategic purpose of influencing relationships between companies.

(c) they are generally long-term investments.

(d) they are equity securities.

41. Debt investments are all of the following except

(a) low risk.

(b) classified according to maturity.

(c) equity securities.

(d) debt securities.

42. Which of the following statements is not correct regarding strategic investments?

(a) They are purchased with the purpose of influencing the investee company.

(b) They are generally classified as investments in associates.

(c) They are frequently debt securities.

(d) The degree of influence determines how a strategic investment is classified.

43. When investing excess cash for short periods of time, corporations generally invest in debt securities that have

(a) high risk and low liquidity.

(b) low risk and high liquidity.

(c) high risk and high liquidity.

(d) low risk and low liquidity.

44. Which of the following is not a model used for valuing non-strategic investments?

(a) fair value through profit or loss

(b) cost model through other comprehensive income

(c) fair value through other comprehensive income

(d) amortized cost

45. Which of the following is false?

(a) The cost model is used only for equity investments.

(b) The cost model reports realized gains and losses on the statement of income.

(c) The cost model is used to account for equity investments where there is significant influence.

(d) The cost model is very similar to the amortized cost model.

46. Which of the following statements is not true?

(a) Under the fair value through other comprehensive income model gains and losses are critical to the evaluation of management.

(b) Under the fair value through profit or loss model, both realized and unrealized gains and losses are reported in the statement of income.

(c) Under the amortized cost model, no unrealized gains or losses are reported.

(d) Non-strategic investments are purchased to generate investment income.

47. All the following investments are generally shown at fair value except

(a) short-term debt investments.

(b) trading investments.

(c) bond investments intended to be held to maturity.

(d) shares purchased with the intention of achieving a capital gain on sale.

48. Which of the following is not true about the accounting for Trading Investments?

(a) They are reported as current assets on the statement of financial position.

(b) Realized gains and losses are reported on the statement of income.

(c) They are valued at fair value.

(d) Unrealized gains and losses are reported on the statement of comprehensive income.

49. If a trading investment in bonds is sold one month after its value was adjusted at year end, the investment account is

(a) debited for the carrying amount of the bonds at the sale date.

(b) credited for the cost of the bonds at the sale date.

(c) credited for the carrying amount of the bonds at the sale date.

(d) debited for the cost of the bonds at the sale date.

50. Hankers Corporation buys 1,500 shares of Viggo Ltd.'s common shares as a trading investment. The shares are purchased for $45 a share. At year end the shares are trading at $48. The adjusting entry at year end is

(a) Cash 4,500

Investment Income 4,500

(b) Trading Investments 4,500

Unrealized Gain on Trading Investments 4,500

(c) Trading Investments 4,500

Realized Gain on Trading Investments 4,500

(d) No entry is required.

Ex. 119

Identify which of the following are true or false.

1. _____ Investments that are held for the purpose of earning interest are called strategic investments.
2. _____ Non-strategic investments can be classified as either short-term or long-term.
3. _____ Both debt and equity securities can be purchased for the strategic purpose of influencing relationships between companies.
4. _____ It is best to invest excess short-term cash in equity securities as share prices fluctuate significantly over the short term.
5. _____ Both debt and equity securities can be purchased as a non-strategic investment.

Ex. 120

Identify the three reasons companies purchase investments in debt or equity securities.

Ex. 121

Identify whether each of the following investments for JCL Incorporated is a non-strategic (NS) or strategic investment (S) and a debt (D) or equity (E) investment:

(a) investment in guaranteed investment certificates

(b) 25% of the common shares in Fragile Ltd. for the purpose of influencing its relationship with Fragile Ltd.

(c) investment in 10-year corporate bonds held for the purpose of earning interest

(d) 10% investment in Alibaba Inc. common shares for the purpose of earning capital gains

(e) 75% of the common shares of Windows Inc. for control purposes

Ex. 122

On January 1, Bartholomew Corporation purchased a three month, 3%, $40,000 term deposit as a trading investment.

Instructions

Prepare entries for the purchase and maturity of the term deposit.

Ex. 123

Glover Corporation reported the following transactions relating to its trading investments:

Jan 1 Purchased $100,000 Chandler Corporation 6% bonds for $104,000. Interest is receivable semi-annually on July 1 and January 1.

Jul 1 Received semi-annual interest on the Chandler Corporation bonds.

Jul 2 Sold one-half of the Chandler Corporation bonds for $53,000.

Instructions

(a) Record the above transactions.

(b) Prepare the adjusting entry for the accrual of interest on December 31.

Ex. 124

The following transactions regarding its trading investments were made by Amarillo Limited:

Jun 2 Purchased 200 Clark Corporation common shares for $45 per share.

Jul 1 Purchased 100 Lewis Corporation bonds for $110,000.

31 Received a cash dividend of $2 per share from Clark Corporation.

Sep 15 Sold 80 shares of Clark Corporation for $50 per share.

Dec 31 Received semi-annual interest cheque for $5,500 from Lewis Corporation.

31 Received a cash dividend of $2 per share from Clark Corporation.

31 Fair values: Lewis bonds $113,500; Clark shares $48 per share.

Instructions

Record the above transactions and events, including any required adjustments on Dec 31.

Ex. 125

Houston Corporation had the following transactions:

Instructions (10 min.)

1. Record the above transactions.
2. Prepare the adjusting entry for the valuation of the investment on December 31, Houston’s year end, assuming the remaining Reynolds shares are worth $12 each on December 31.

Ex. 126

Lion Limited purchased 40,000 common shares of Tiger Corp. for $800,000, as a long-term investment. During the year, Tiger Corp. reported net income of $200,000 and paid total dividends of $90,000. The fair value of the shares on Dec. 31 was $820,000.

Instructions

(a) Assuming that the 40,000 shares represent a 10% interest in Tiger Corp. and this is classified as a trading investment:

1. Prepare the journal entry to record Lion’s investment in Tiger shares.

2. Prepare any entries that Lion should make in accounting for its investment in Tiger shares during the year.

3. What is the balance of the investment account on Lion's books at December 31?

(b) Repeat requirement (a) above except assume that the 40,000 shares represent a 40% interest in Tiger Corp.

Ex. 127

Information relating to equity investments made in 2022 by Mahdi Corporation follows:

1. On January 1, 2022, Mahdi obtained significant influence over Webster Inc. by buying 30% of Webster's 120,000 issued common shares at $24 per share. On June 15, 2022, Webster declared and paid a cash dividend of $1.50 per share. On December 31, Webster's reported net income was $280,000, and their shares were trading at $25.50.

2. On March 1, 2022, as a trading investment, Mahdi acquired 12% of the 250,000 issued common shares of Noah Limited at $8 per share. On July 1, 2022, Noah declared and paid a cash dividend of $2 per share. On December 31, 2022, Noah's reported net income was $654,000 for the year and its shares were trading at $7.50.

Instructions

Prepare all necessary journal entries relating to these two investments for 2022 for Mahdi Corporation.

Ex. 128

Complete the following table. The shares are purchased at the beginning of the year and sold at the end of the year.

Ex. 129

Ainsworth Corporation, a publicly-traded company, had the following transactions during 2022 to be trading investments:

At December 31, Ainsworth’s fiscal year end, the fair values of the Circle Adventures and Benji common shares were $18.50 and $32 per share, respectively.

Instructions

Record the above transactions, including required adjusting journal entries (if any).

Ex. 130

Platinum Corporation reported the following transactions relating to its trading investments. Platinum Corporation follows IFRS and has elected to report trading investments under the fair value through profit and loss model.

Jan 1 Purchased 1,200 Silver Corporation shares for $20 cash each.

Jun 1 Received cash dividends of $0.50 per share on Silver Corporation shares.

Sep 15 Sold 600 shares of Silver Corporation for $13,800 ($23 each).

Dec 1 Received cash dividends of $0.75 per share on Silver Corporation shares.

Dec 31 Silver shares were trading at $27 each.

Instructions

(a) Record the above transactions and events.

(b) Indicate where any revenues and gains or losses (realized or unrealized) would appear in the financial statements.

Ex. 131

Ontario Corporation (a private corporation) reported the following transactions relating to its trading investments:

Jan 1 Purchased 1,000 Manitoba Corporation shares for $45,000 cash.

Jun 1 Received cash dividends of $0.50 per share from Manitoba Corporation.

Sep 15 Sold 400 shares of Manitoba Corporation for $14,875.

At year end (December 31), the Manitoba shares were trading at $42.

Instructions

(a) Record the above transactions.

(b) Prepare the adjusting entry, if any, regarding the Manitoba shares at December 31.

(c) Indicate where any revenues and gains or losses (realized or unrealized) would appear in the financial statements.

Ex. 132

Metro Corporation reported the following transactions relating to its trading investments:

Jan 1 Purchased 1,000 shares of London Ltd. shares for $64,000 cash.

Jun 1 Received cash dividends of $5 per share on the London shares.

Sep 15 Sold 250 London shares for $15,500.

Dec 31 The fair value of the London shares was $49,250.

Instructions

(a) Record the above transactions and events.

(b) Indicate where any revenues and gains or losses (realized or unrealized) would appear in the financial statements.

*Ex. 133

On January 1, 2022, Alfalfa Ltd. paid $457,876.36 for 4% bonds with a maturity value of $500,000. The purchase price was based on a market interest rate of 6%. The bonds were issued by Spanky Inc. on January 1, 2022, and mature on January 1, 2027, with interest receivable on December 31 of each year. Alfalfa classifies the bonds as a non-strategic debt investment held to earn interest income.

Instructions

Prepare the following for Alfalfa Ltd. (record all journal entry amounts to the nearest cent):

(a) Prepare the journal entry to record the bond purchase.

(b) Prepare a bond amortization schedule.

(c) Prepare the journal entry to record the receipt of interest on December 31, 2022.

(d) Prepare the journal entry to record the receipt of interest on December 31, 2023.

(e) Prepare the journal entry to record the disposal of the bond at maturity.

Ex. 134

On January 1, Lumina Corporation purchased a 25% equity investment in Evangel Corporation for $450,000. On December 31, Evangel paid a $15,000 dividend and reported a net profit of $90,000. The fair value of the shares on December 31 was $415,000.

Instructions

(a) Record the above transactions and events.

(b) Determine the amount that Lumina reported as the investment in Evangel Corporation at December 31.

Ex. 135

On January 1, Mangal Corporation purchased a 40% equity investment in Fryer Corporation for $900,000. On December 31, Fryer paid a $30,000 dividend and reported a net loss of $180,000. The fair value of the shares on December 31 was $825,000.

Instructions

(a) Record the above transactions and events.

(b) Determine the amount to be reported as the investment in Fryer Corporation at December 31.

Ex. 136

On January 1, 2022, Henderson Corp. purchased 10,000 Alpha Inc. shares for $825,000. This investment represents 30% of the total issued common shares of Alpha Inc. During 2022, Alpha paid total dividends of $60,000 and reported net income of $325,000. At December 31, 2022, the fair value of the Alpha Inc. shares was $950,000.

Instructions

(a) Calculate the income that Henderson reports for 2022 related to this investment.

(b) Determine the amount to be reported on the statement of financial position under “Investment in Associates” at December 31, 2022.

Ex. 137

On January 1, 2021, as a long-term investment, Samantha Ltd. purchases 2,000 Marvel Corp. common shares for $10 each, which represents 50% of the issued shares. Marvel Corp. is a private company not traded on the stock market. Samantha is also a private company, reporting under ASPE, and chooses to use the cost method to account for the Marvel investment.

On July 1, 2021, Marvel pays a total dividend of $38,000.

At year end, December 31, 2021, a fair value of the Marvel shares is not available, but Samantha estimates the fair value is $11.50.

On November 1, 2022, Samantha sells 40% of its holdings back to Marvel for $12,500.

Instructions

Prepare all necessary journal entries relating to this investment on Samantha’s books.

Ex. 138

Identify which of the following items earned are reported on the statement of income, not recorded or not applicable given each of the respective measurement methods. An example is shown for the first line item.

*Ex. 139

On January 1, 2021, Marianne Corp. purchased $50,000 of Robbin Company’s 4%, 10-year bonds for $48,000, since the market rate was approximately 4.5%. The bonds pay interest on January 1 and July 1. Marianne Corp. has a calendar year end, and classified the bonds as a long-term investment. On December 31, 2021, the fair value of these bonds was $48,400. On January 2, 2022, Marianne sold the bonds for $48,400.

Instructions

Prepare the required entries to record the above transactions and events. Round all values to the nearest dollar.

*Ex. 140

On January 1, 2021, Palermo Corp. purchased $50,000 of Sicilia Ltd.’s 5%, 5-year bonds for $52,250, since the market interest rate was approximately 4%. The bonds pay interest on January 1 and July 1. Palermo Corp. has a calendar year end, and classified the bonds as a long-term investment. The fair value of the bonds on December 31, 2021 was $51,500. On January 2, 2022, Palermo sold the bonds for $51,000.

Instructions

Prepare the required entries to record the above transactions and events. Round all values to the nearest dollar.

*Ex. 141

On January 1, 2022, Mickey Ltd. paid $543,294.77 for 7% bonds with a maturity value of $500,000. The purchase price was based on a market interest rate of 5%. The bonds were issued by Minnie Inc. on January 1, 2022, and mature on January 1, 2027, with interest receivable on December 31 of each year. Mickey classifies the bonds as a non-strategic debt investment held to earn interest income.

Instructions

(a) Prepare the journal entry to record the bond purchase.

(b) Prepare a bond amortization schedule using the effective-interest method.

(c) Prepare the journal entry to record the receipt of interest on December 31, 2022.

(d) Prepare the journal entry to record the receipt of interest on December 31, 2023.

(e) Prepare the journal entry to record the disposal of the bond at maturity.

*Ex. 142

On January 1, 2022, Bijou Ltd. paid $45,945 for 6% bonds with a maturity value of $50,000. The purchase price was based on a market interest rate of 8%. The bonds were issued by Trinket Inc. on January 1, 2022, and mature on January 1, 2023, with interest receivable on December 31 of each year. Bijou classifies the bonds as a non-strategic debt investment held to earn interest income.

Instructions

1. Prepare the following for Bijou Ltd. (record all journal entry amounts to the nearest dollar):
2. Prepare the journal entry to record the bond purchase.
3. Prepare the journal entry to record the receipt of interest on December 31, 2022.
4. Prepare the following for Trinket Ltd. (record all journal entry amounts to the nearest dollar):
5. Prepare the journal entry to record the bond issue.
6. Prepare the journal entry to record the payment of interest on December 31, 2022.