On January $1,2025,$ Copa Company purchased $$300,000,6\%$ bonds of Cabana Co$.$ for $$313,128.$ The bonds were purchased to yield $5\%$ interest. Interest is payable semiannually on July $1$ and January $1.$ The bonds mature on January $1,2030.$ Copa Company uses the effective$-$interest method to amortize discount or premium. On January $1,2027,$ Copa Company sold the bonds for $$305,600$ after receiving interest to meet its liquidity needs.

Instructions

a$.$ Prepare the journal entry to record the purchase of bonds on January $1.$ Assume that the bonds are classified as available$-$for$-$sale.

b$.$ Prepare the amortization schedule for the bonds.

c$.$ Prepare the journal entries to record the semiannual interest on July $1,2025,$ and December $31,2025.$

d$.$ If the fair value of Cabana bonds is $$310,000$ on December $31,2026,$ prepare the necessary adjusting entry. $($Assume the fair value adjustment balance on January $1,2026,$ is a credit of $$2,790.)$

e$.$ Prepare the journal entry to record the sale of the bonds on January $1,2027.$