On December 31, 20X1, a company purchased $1 million of 10-year, 10% debentures for $885,300. The market

Question:

On December 31, 20X1, a company purchased $1 million of 10-year, 10% debentures for $885,300. The market interest rate was 12%.

1. Using the balance sheet equation format, prepare an analysis of bond transactions for the investor. Assume effective interest amortization. Show entries for the investor concerning

(a) Purchase,

(b) First semiannual interest payment,

2. Show the journal entries that correspond to (a), (b), and (c) of requirement 1.

3. Show how the bond investment would appear on the balance sheets as of December 31, 20X1, and June 30, 20X2.

Debentures
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