Week $8$&$9$: CH$9-$Assignment $6$

BUS $320-$ Intermediate Accounting: Assets

QUESTION $3$

On January $1,2023,$ Novotna Company purchased $$400,000$ worth of $8\%$ bonds of Aguirre Co$.$ for $$369,114.$ The bonds were purchased to yield $10\%$ interest. Interest is payable semi$-$annually, on July $1$ and January $1.$ The bonds mature on January $1,2028.$ Novotna uses the effective interest method to amortize the discount or premium. On January $1,2025,$ to meet its liquidity needs, Novotna sold the bonds for $$370,726,$ after receiving interest.

Instructions

a$)$ Prepare the journal entry to record the purchase of bonds on January $1.$ Assume that the bonds are classified as FV$-$OCI.

b$)$ Prepare the amortization schedule for the bonds. Round all amounts to the nearest dollar.

c$)$ Prepare the journal entries to record the semi$-$annual interest on July $1,2023,$ and December $31,2023.$

d$)$ Assuming the fair value of the Aguirre bonds is $$372,726$ on December $31,2024,$ prepare the necessary adjusting entry. $($Assume that the fair value adjustment balance on January $1,2024,$ is a debit of $$3,375.)$

e$)$ Prepare the journal entry to record the sale of the bonds on January $1,2025,$ including reclassifying holding gains or losses to net income.