The Davis Group acquired $ 4,500,000 par value, 4%, 20- year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue was 6% and interest is paid annually on December 31. Davis will use the effective interest rate method to account for this investment. Davis intends to hold the investment until the bonds mature.
Required
a. Determine the purchase price of the investment in bonds.
b. Prepare the journal entry to record the acquisition of the bond investment.
c. Prepare the journal entry to record the interest income for the first year.