Answer:
1) July 1, 2021, bonds purchased at a premium
Dr Investment in bonds 230,000,000
Dr Premium on bonds 30,000,000
Cr Cash 260,000,000
Sine the price paid for the bonds was higher than the face value, they were purchased at a premium.
2) December 31, 2021, coupon payment received from investment in bonds
Dr Cash 9,200,000
Cr Interest revenue 7,800,000
Cr Premium on bonds 1,400,000
amortization of bond premium = (260,000,000 x 3%) - 9,200,000 = -1,400,000
3) investment in bonds balance = $260,000,000 - $1,400,000 = $258,600,000
4) January 2, 2022, bonds sold
Dr Cash 270,000,000
Cr Investment in bonds 230,000,000
Cr Premium on bonds 28,600,000
Cr Gain on sale of investment 11,400,000
Gain on sale = selling price - carrying value of investment = $270,000,000 - $258,600,000
