On July 31, 2020, Diogenes Inc. purchased 9%, $200,000, 10-year bonds. Interest is paid annually on December 31. Diogenes uses the amortized cost model and the effective interest method for amortizing premium or discount. The current market rate was 10% and as a result, Diogenes paid $187,711 for the bonds. On December 31, 2020, the bonds have a market value of $185,000.On December 31, 2021, the bonds have a market value of $188,000.

Instructions

Assume the company does not intend to hold the bonds to maturity and therefore uses FV-NI to account for the bonds:

a) Record the entry for the purchase of the bonds.

b) Record the receipt of interest and amortization of the discount for 2019 and any year end adjustment required.

c) Record the receipt of interest and amortization of the discount for 2020 and any year end adjustment required.