Bond: On 1 January 20X2, Investor Company purchased $ 1,000,000 of Operating Corporation 5% bonds, classified as an AC investment. The bonds pay semi- annual interest each 30 June and 31 December. The market interest rate was 6% on the date of purchase. The bonds mature on 30 December 20X11.

Required:

1. Calculate the price paid by Investor Company.

2. Construct a table that shows interest revenue reported by Investor, and the carrying value of the investment, for the first two interest periods. Use the effective- interest method.

3. Give entries for the first interest payment based on your calculations in requirement 2.