John Quinn Associates acquired $ 7,550,000 par value, 6%, 20- year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue is 10% and interest is paid semiannually on June 30 and December 31. Quinn uses the effective interest rate method to account for this investment. Quinn does not intend to hold the investment until maturity nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $ 5,197,500.
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 the journal entries to record the interest income for the first year.
d. Prepare the journal entry required to adjust the investment’s carrying amount to fair value at year end, if necessary.