On January 1, 2010, the Kelly Corporation acquired bonds with a face value of $500,000 for $483,841.79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2013 and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and the first two interest receipts using:
1. The straight line method of amortization.
2. The effective interest method of amortization.