On January 1, Highland Corporation purchased $85,000 of six percent, three-year bonds as long-term investment. Iterest is paid annually. The company is not involved in active trading of securities.
a. What accounts are increased and/or decreased by the purchase of this bond and by which amount?
b. What accounts are increased and/or decreased by the receipt of the first interest payment on the bonds in part A and by which amount?
c. Assuming the company intends to hold the bonds to maturity, what accounts are increased and/or decreased at the end of the first year if the market value of the bonds is $88,500 at that time?
d. How would your answer to part C differ if the company does not intend to hold the bonds to maturity?
e. What accounts would be increased and/or decreased at the end of the first year then and by what amount?