Answer:
1) The Investment would be classified as Held-to-maturity securities
2) Journal Entries (in millions)
Debit Investment $170 Credit Bank $140 Credit Discount on investment $30
3) Debit Bank $5.1 Debit Discount on investment $0.5 Credit Interest Income $5.6
4) Debit Fair Value loss $20 Credit Investment $20
5) The investment will be reported at the fair value of $150,000
6) Debit Bank $120 Debit Discount on Investment $29.5 Loss on Investment $0.5 Credit Investment $150,000
Explanation:
Interest = investment * semiannual interest
6%/2 = 3%
8%/2 = 4%
Bank = $170,000,000*3% = $5,100,000
Interest income = $140,000,000*4%= $5,600,000
Fair Value $150
cost $170
Fair Value Loss = $20
