On December 31, 20X1, the Bavetta Company purchased $2 million of 5-year, 10% debentures for $2,162,220. The market interest rate was 8%.
1. Using the balance sheet equation format, prepare an analysis of transactions for the investor’s records. Key your transactions as follows: (a) purchase, (b) first semiannual interest payment using effective interest amortization of bond premium, and (c) payment of maturity value.
2. Prepare the journal entries that correspond to (a), (b), and (c) of requirement 1.
3. Show how the bond-related accounts would appear on the balance sheets as of December 31, 20X1, and June 30, 20X2.