Using the information provided in E16- 2, prepare the fair value adjustment journal entries at the end of the second and third years after the acquisition of the investment assuming that the fair value of the bonds is equal to $ 5,100,000 at the end of year 2 and $ 4,905,750 at the end of year three.
In E16-2
John Quinn Associates acquired $ 7,550,000 par value, 6%, 20- year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue is 10% and interest is paid semiannually on June 30 and December 31. Quinn uses the effective interest rate method to account for this investment. Quinn does not intend to hold the investment until maturity nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $ 5,197,500.