Eysser Corporation purchased $50,000 of Hillside Construction Companys 10% bonds at l03 plus accrued interest on February

Eysser Corporation purchased $50,000 of Hillside Construction Company’s 10% bonds at l03⅞ plus accrued interest on February 1, 2011. The bonds mature on April 1, 2018, and interest is payable on April 1 and October 1. Eysser uses the straight-line method of amortizing bond premiums and discounts.

Required:

1. Record all journal entries to account for this investment during the years 2011 and 2012, assuming that Eysser closes its books annually on December 31.

2. Interpretive Question: At the time these bonds were purchased (February 1, 2011), was the market rate of interest above or below 10%? Explain.