Sun Company purchased $ 4,000,000 of Moon Corporation 6.2% bonds, classified as an AC investment. The bonds pay semi- annual interest each 30 June and 31 December. The market interest rate was 6% on the date of purchase. The bonds mature on 30 June 20X13.
1. Calculate the price paid by Sun Company.
2. Construct a table that shows interest revenue reported by Sun, and the carrying value of the investment, for each interest period for four interest periods. Use the effective- interest method.
3. Give entries for the first two interest periods based on your calculations in requirement 2.
4. How much interest income would be reported for the year ended 31 December 20X9? What would the balance of the investment account be at this time?