On January 1, Year 1 Alcorn Corporation purchased $95,000 of 9% bonds at face value. The bonds are classified as a held-to-maturity investment. The bonds pay interest semiannually on January 1 and July 1. On December 31, Year 1, the fair value of the bonds is $98,000. Alcorn's fiscal year ends on December 31.

Required:

1. Prepare the journal entries to record the acquisition of the bonds and the first two interest payments. Include any year-end adjusting entries.

2. If the bonds were classified as an available for sale security, what additional adjusting entry would be made on December 31?