On April 1, 2014, JoeLite Corporation paid $851,560 to acquire bonds of Luxem Inc. with a par value of $860,000. The annual contract rate on the bonds is 6.5% and interest is paid quarterly beginning June 30, 2014. The bonds mature in six years. The market rate of interest at the time of purchase was 6.7%. JoeLite Corporation plans to hold the bonds until they mature.
1. Prepare an amortization schedule for the investment showing only 2014.
2. Prepare JoeLite’s entries to record:
(a) The purchase of the bonds, and
(b) The receipt of the first three interest payments.
3. Show how the investment will appear on the December 31, 2014, balance sheet.