Amortized Cost Model}

Mahco Financial began operations in 2018 and invests in bonds to be held to maturity. On Jan-

OBJECTIVE 1 uary 1, 2018, Mahco acquired a \(\$ 1,000,0008 \%\) bond (yield 7.6\%) due December 31,2037 , issued by JJK for \(\$ 1,040,000\). Interest is paid semiannually on June 30 and December 31. On July 1, 2018, Mahco acquired a \(\$ 2,000,0006 \%\) bond ( \(6.27 \%\) yield) due July 1,2028 , issued by MMM for \(\$ 1,960,000\). Interest is paid semiannually on June 30 and December 31 .

\section*{Required:}

1. Prepare the journal entries to record the carrying value of the bonds at December 31,2018 , using the effective interest rate method for bond discount and premium. Include all other entries that are required for 2018.

2. Prepare the journal entries to record the carrying value for the bonds at December 31, 2018, using the straight-line method of amortization for bond discount and premium. Include all other entries that are, required for 2018.

3. How would your journal entries change if the market value of the bonds on December 31, 2018, were \(\$ 1,035,000\) (JJK bond) and \(\$ 1,972,000\) (MMM bond)?

\section*{Exercise