Problem 3:

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Question: Problem 3: Stewart Enterprises acquired $500,000 of 8% bonds on Jan. 1, 2016, as a long-term inve…
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Stewart Enterprises acquired 0,000 of 8% bonds on Jan. 1,
2016, as a long-term investment. Management has the positive intent
and ability to hold the bonds until maturity. The bonds pay
interest semiannually on June 30 and December 31, and mature on
Jan. 1, 2021. The market interest rate (yield) was 6% for bonds of
similar risk and maturity. (The present value of $1, n=10, i =3% is
$0.74409; the present value of $1 annuity, n=10, i =3% is


How much did Stewart pay for the investment?

Prepare the journal entries (1) to record Stewart’s investment
in the bonds on Jan. 1, 2016, (2) to record interest on June 30,
2016, at the effective (market) rate, and (3) to record interest on
Dec. 31, 2016, at the effective rate.

How would the investment be presented on the Dec. 31, 2016
balance sheet?

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