On July 1, 2014, Imperial Inc., a public company, purchased $500,000 of Acme Corp. 10-year, 4% bonds

Question:

On July 1, 2014, Imperial Inc., a public company, purchased $500,000 of Acme Corp. 10-year, 4% bonds for $461,000 to earn interest. The bonds had a market interest rate of 5%. The bonds pay interest semiannually on January 1 and July 1. Imperial Inc. has a December 31 year end. At December 31, 2014, the bonds are trading at 96.
Instructions
(a) Assuming Imperial Inc. purchased the bonds from Acme Corp., record the purchase of the bonds on July 1 for
(1) Imperial Inc., and
(2) Acme Corp.
(b) Record any adjusting journal entries that are required at December 31 for
(1) Imperial Inc., and
(2) Acme Corp.
(c) Record the receipt of the first interest payment on January 1, 2015, for
(1) Imperial Inc., and
(2) Acme Corp.
(d) Compare the accounting for the bond investment with that of the bond liability.