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Magenta Inc., on January 1, 2016, purchased a bond with a maturity value of $250,000. The bonds had a 4% per year coupon rate payable annually on December 31. The bond matures in 3 years. The market yield for bonds with equivalent risk and maturity was 2% per year. 

Required: 

1. Is this a discount bond or premium? Explain why you think so. 

2. Compute the amount required to purchase this bond at the beginning of the 3 year period. Provide the journal entry to record the purchase. 

3. Provide the amortization schedule for the 3 years. Provide the journal entry required at December 31, 2016, the year of acquisition. 

4. If the company holds their debt investment using FVOCI, how would the entries noted above change?  

 

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