Problem - On February 1, 2013 Pearson Company purchased $670,000 of three-year, 8% bonds dated December 1, 2012. Interest is payable semi-annually on 31 May and 30 November. Pearson Company has a December 31 year end. The market interest rate was 6% per annum on the date of purchase.
Required:
1. Calculate the present value of the bond assuming that it had been issued on 1 December 2012.
2. Prepare a bond amortization schedule. Use the effective-interest method of amortization.
3. Calculate the accrued interest receivable that Pearson would have to pay.
4. Prepare the journal entries for Feb 1, May 31, Nov 30 and December 31.