Grange Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chaps Corporation for $74,086, which provides an 11% return. Prepare Grange's journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.
(a) Debt Investments (Held-to-Maturity)................................................. 74,086
Cash............................................................................................ 74,086
(b) Cash ($80,000 X .09)............................................................................ 7,200
Debt Investments (Held-to-Maturity)................................................. 949
Interest Revenue ($74,086 X .11).............................................. 8,149