P$16\mathrm{.}2($LO $1)($Available$-$for$-$Sale Debt Securities$)$ On January $1,2025,$ Novotna Company purchased $$400,000,8\%$ bonds of Aguirre Co$.$ for $$369,114.$ The bonds were purchased to yield $10\%$ interest. Interest is payable semiannually on July $1$ and January $1.$ The bonds mature on January $1,2030.$ Novotna Company uses the effective$-$interest method to amortize discount or premium. On January $1,2027,$ Novotna Company sold the bonds for $$370,726$ after receiving interest to meet its liquidity needs.

Instructions

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

Prepare the amortization schedule for the bonds.

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

If the fair value of Aguirre bonds is $$372,726$ on December $31,2026,$ prepare the necessary adjusting entry. $($Assume the fair value adjustment balance on December $31,2025,$ is a debit of $$3,375.)$

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