New Company purchased $ 600,000 of Old Corporation 5.5% bonds, classified as an AC investment. The bonds pay semi- annual interest each 30 June and 31 December. The market interest rate was 5% on the date of purchase. The bonds mature on 30 June 20X5.
1. Calculate the price paid by New Company.
2. Construct a table that shows interest revenue reported by New Company, and the carry-ing value of the investment, for each interest period to maturity. Use the effective- interest method.
3. Give entries for the first three interest periods based on your calculations in requirement 2.