Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are managed to profit from changes in market interest rates.

Instructions
(a) Indicate whether the bonds were purchased at a discount or at a premium.
(b) Prepare the adjusting entry to record the bonds at fair value at December 31, 2010. The Securities Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment.
(c) Prepare the adjusting entry to record the bonds at fair value at December 31,2011.

Transcribed Image Text:

Amortized cost Fair value 12/31/10 $491,150 $497,000 12/31/11 $519,442 $509,000 12/31/12 $550,000 $550,000