On January 1, 2016, Dnata Company purchased $600,000, 6% bonds of Quasi Co. for $650,200. The bonds were purchased to yield 5% interest (market rate). Interest is payable semiannually on June 30 and December 31. The bonds mature on December 31, 2020. Dnata Company uses the effective-interest method to amortize discount or premium. On December 31, 2018, Dnata Company sold the bonds for $625,000 after receiving interest to meet its liquidity needs.

Required

1. Prepare the journal entry to record the purchase of bonds on January 1, 2016. Assume that the bonds are classified as available-for-sale. (3 marks)

2. Prepare the amortization schedule for the bonds up till December 31st, 2017. Round up or down to the nearest dollar. (4 marks)

3. Assuming that the fair value of Quasi bonds is $650,000 on December 31, 2017, prepare the necessary adjusting entry for fair value on that day. (10 marks)