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1. On January 1, 2020, Novotna Company purchased $1,000,000, 6% bonds of Aguirre Co. for $947,574. The bonds were purchased to yield 8% interest.
1. On January 1, 2020, Novotna Company purchased $1,000,000, 6% bonds of Aguirre Co. for $947,574. The bonds were purchased to yield 8% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2023. Novotna Company uses the effective-interest method to amortize discount or premium. On July 1, 2022, Novotna Company sold the bonds for $1,050,000 after receiving interest to meet its liquidity needs. If the fair value of Aguirre bonds is $1,200,000 on December 31, 2021, prepare the necessary adjusting entry. (Assume the fair value adjustment balance on December 31, 2020, is a credit of $3.000.)
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