The Mercer Corporation acquired $400,000 of the Park Company's bonds on June 30, 2006 for $409,991.12. The bonds carry a 12% stated interest rate, pay interest semiannually on June 30 and December 31, were issued to yield 11%, and are due June 30, 2009.
1. Prepare an investment interest revenue and premium amortization schedule, using:
a. The straight-line method
b. The effective interest method
2. Prepare journal entries to record the December 31, 2006 and December 31, 2008 interest receipts using both methods.