Premium Investments Ltd. bought the following bond investment: $4,000,000 bonds of Trans BC Operations Ltd. The bonds were purchased 1 Feb 20X5. Interest at 6% is payable semi annually on January 31 and July 31. The bonds mature in four years on 31 January 20X9. The current market rate at the time of purchase was 4%. The company has classified these bonds as AC. Premium has a 31 January year end.

At 31 January 20X6, Premium assessed the credit risk of the Trans BC bonds to have not changed significantly. They estimated expected credit losses at $65,000.

At the end of 31 January 20X7, the credit risk of Trans BC bonds was assessed to have changed significantly and the expected credit losses were estimated to be $475,000.

During 20X7, Trans BC suffered significant losses and contacted Premium about possibly renegotiating its contractual payments. Interest payments were received on July 31 and January 31 as required. Based on discussions with Trans BC, Premium estimated that future expected cash flows would be as follows: $75,000 paid semi annually on 31 July and 31 January with a final payment of $3,000,000 on 31 January 31 20X12 as follows:

Period                                                Cash Payment $

July 31, 20X8 ......................................      $75,000

Jan 31, 20X9 .....................................          75,000

July 31, 20X9 .....................................         75,000

Jan 31, 20X10 .....................................       75,000

July 31, 20X10 ....................................       75,000

Jan 31, 20X11 .....................................       75,000

July 31, 20X11 .....................................      75,000

Jan 31, 20X12 .....................................       75,000

Jan 31, 20X12 .....................................  3,000,000

Required:

1. Calculate the price of Trans BC bonds paid by Premium. (Round to the nearest 10)

2. Construct a table that shows interest revenue reported by Premium and the carrying value of the investment for each interest period to maturity using the effective interest method.

3. Prepare the journal entries related to the bond for fiscal years 31 January 20X6, 20X7, and 20X8, given the additional information.

4. Prepare the revised amortization schedule based on the revised payments. Prepare the journal entries for the payments received during the fiscal year 31 January 20X9.