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  3. on july 1, 2018, kit kat company purchased $400,00

On July 1, 2018, Kit Kat Company purchased $400,000 of Kool Companys 10%, 10-year bonds...

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Accounting

On July 1, 2018, Kit Kat Company purchased $400,000 of Kool Companys 10%, 10-year bonds for $354,118, reflecting a 12% market rate. Interest on the bonds is paid semi-annually on December 31 and June 30.

Requirement 1: On July 1, 2018, what entry did Kit Kat record for the purchase of the bonds? Below the entry, show the effect of the transaction on the 2018 financial statements.

ASSETS = LIABILITIES + SHAREHOLDERS EQUITY 2018 NET INCOME

Requirement 2: On December 31, 2018, what entry did Kit Kat record for the receipt of a semiannual interest payment from Kool Co? Below the entry, show the effect of the transaction on the 2018 financial statements. Kit Kat recorded interest using the effective interest method.

ASSETS = LIABILITIES + SHAREHOLDERS EQUITY 2018 NET INCOME

Requirement 3: At the end of 2018, the fair value of the Kool Co. bonds is $344,000. Show the amount reported for the investment on the 2018 balance sheet if the investment is classified as a:

Trading security Held-to-maturity security

Requirement 4: If Kit Kat holds the Kool Co. bonds for 10 years (to maturity), what is the total amount of interest revenue Kit Kat will recognize? SHOW COMPUTATIONS TO SUPPORT YOUR ANSWER.

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