Matthews Ltd. purchased $700,000 of 10-year, 10% bonds on July 1, 2012, at 106.5. The purchase price

Question:

Matthews Ltd. purchased $700,000 of 10-year, 10% bonds on July 1, 2012, at 106.5. The purchase price was based on a market interest rate of 9%. Interest is received semi-annually on January 1 and July 1. The bonds were trading at 107 at December 31, 2012. Matthews intends to trade the bonds in the near future.
Instructions
(a) Record the purchase of the bonds.
(b) Record any required adjusting journal entries at December 31