On January 1, 2016, a company pays ($5,222,591) for a 5-year corporate bond with a face value
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On January 1, 2016, a company pays \($5,222,591\) for a 5-year corporate bond with a face value of \($5\) million. The bond pays interest at 5 percent on December 31 of each year, and the principal is due on December 31, 2020. The investment yields a 4 percent compound annual return to maturity. The company classifies the bond as a held-to-maturity investment.
Required
Prepare the journal entries to record the investment on January 1, 2016, receipt of the interest payments on December 31 of each year 2016 through 2020, and receipt of the bond principal on December 31, 2020, using the effective interest method.
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