On January 1, 2014, Novotna Company purchased $432,800, 8% bonds of Aguirre Co. for $383,865. The bonds

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Question:

On January 1, 2014, Novotna Company purchased $432,800, 8% bonds of Aguirre Co. for $383,865. The bonds were purchased to yield 11% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2019. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2016, Novotna Company sold the bonds for $385,445 after receiving interest to meet its liquidity needs.

Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale.

Date	Account Titles & Explanation	Debit	Credit
Jan 1 2014	Debt Investments	383,865
	Cash		383,865

Prepare the amortization schedule for the bonds. (Round answers to 0 decimal places, e.g. 1,250.)

		Schedule of Interest Revenue and Bond Discount Amortization—Effective-Interest Method Bonds Purchased to Yield
Date	Interest Receivable Or Cash Received	Interest Revenue	Bond Discount Amortization	Carrying Amount of Bonds
1/1/14	0	0	0	383,865
7/1/14	17,312	??	??	??
12/31/14	17,312	??	??	??
7/1/15	17,312	??	??	??
12/15/15	17,312	??	??	??
7/1/16	17,312	??	??	??
12/31/16	17,312	??	??	??
7/1/17	17,312	??	??	??
12/31/17	17,312	??	??	??
7/1/18	17,312	??	??	??
12/31/18	17,312	??	??	??
Total	173,120	??	??	??

(c)

Prepare the journal entries to record the semiannual interest on (1) July 1, 2014, and (2) December 31, 2014.

(d)

If the fair value of Aguirre bonds is $387,445 on December 31, 2015, prepare the necessary adjusting entry. (Assume the fair value adjustment balance on January 1, 2015, is a debit of $3,336.)

(e)

Prepare the journal entry to record the sale of the bonds on January 1, 2016.

No.	Date	Account Titles and Explanation	Debit	Credit
c	(1) July 1, 2014	Cash	17,312
		Debt Investments	???
		Interest Revenue		???
	(2) Dec 31, 2014	Interest Receivable	17,312
		Debt Investments	???
		Interest Revenue		???
d	Dec 31, 2015	Unrealized Holding Gain or Loss - Equity	???
		Fair Value Adjustment		???
e	Jan 1, 2016	Cash	???
		Loss on Sale of Investments	???
		Debt Investments		???