Question: Capitol Corporation acquired $ 6,735,000 par value, 6%, five- year bonds on their date of issue, January 1 of the current year. The market rate

Capitol Corporation acquired $ 6,735,000 par value, 6%, five- year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue was 10% and interest is paid semiannually on June 30 and December 31. Capitol will use the effective interest rate method to account for this investment. Capitol intends to hold the investment until the bonds mature.

Required
a. Determine the purchase price of the investment in bonds.
b. Prepare the journal entry to record the acquisition of the bond investment.
c. Prepare an amortization table for the investment using the effective interest rate method.
d. Prepare the journal entry to record the interest income for the first year.
e. Prepare the journal entry to record the sale of the bonds at the end of the third year for $ 6,100,000.

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