On January 1, 2010, Lynch Company acquired 13% bonds with a face value of $50,000. The bonds

Question:

On January 1, 2010, Lynch Company acquired 13% bonds with a face value of $50,000. The bonds pay interest on June 30 and December 31 and mature on December 31, 2012. Lynch Company paid $51,229.35, a price that yields a 12% effective annual interest rate.

Required

1. Record the purchase of the bonds.

2. Prepare an investment interest revenue and premium amortization schedule using the effective interest method.

3. Record the receipts of interest on June 30, 2010 and December 31, 2012.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...