Financial institutions such as insurance companies and pension plans hold large quantities of bond investments. Suppose Sun Life Insurance Company purchases $1,000,000 of 3.00 percent bonds of Hydro-Québec at 102.00 on July 1, 2020. These bonds pay interest on January 1 and July 1 each year. They mature on July 1, 2040. At December 31, 2020, the market price of the bonds is 101.00. Sun Life plans to hold these bonds to maturity.

Required

1. Journalize Sun Life’s purchase of the bonds as a long-term investment in bonds on July 1, 2020. Disregard brokerage commissions.

2. Journalize the accrual of interest revenue and amortization of the premium for six months at December 31, 2020. Assume the straight-line method is appropriate for amortizing the premium.

3. Calculate the carrying value of the Hydro-Québec bonds at December 31, 2020.