On January 1 of the current year, Baker Corp. purchased $60,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature in ten years on December 31. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%.

a) Were the bonds purchased at a discount or premium? b. Prepare a bond amortization schedule for the current year (Year 1) and the following year (Year 2) using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar.

c. Prepare the journal entry for the purchase of the investment on January 1.

d. Prepare the journal entries to record interest received on December 31 of Year 1 and December 31 of Year 2.

e. Indicate the carrying value of the Chocolate bonds on Bakers balance sheet on December 31, Year 2, assuming that the fair value of the bonds on that date was $62,400.