Investments in Held-to-Maturity Securities
Response to the following problem:
Eysser Corporation purchased $50,000 of Hillside Construction Company's 10% bonds at 103 ½ plus accrued interest on February 1, 2008. The bonds mature on April 1, 2015, and interest is payable on April 1 and October 1. Eysser Corporation uses the straight-line method of amortizing bond premiums and discounts.
Required:
1. Record all journal entries to account for this investment during the years 2008 and 2009, assuming that Eysser closes its books annually on December 31.
2. Interpretive Question: At the time these bonds were purchased (February 1, 2008), was the market rate of interest above or below 10%? Explain.