Amortized cost model for bond investment
Luke Corporation purchased $60,400 of 6-year, 7% bonds of Reed Inc. for $57,566 to yield an 8% return, and classified the purchase as an amortized cost method investment. The bonds pay interest semi-annually.
a) Assuming Luke Corporation applies IFRS, prepare its journal entries for the purchase of the investment and receipt of semi-annual interest and discount amortization for the first two interest payments that will be received.
b) Assuming Luke applies ASPE and has chosen the straight-line method of discount amortization, prepare the same three entries requested in part a).