QUESTION 5 (Debt Investments, Fair Value Option) On January I, 2018, 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, 2023. Novotna Company plans to hold the bonds to collect contractual cash flows. On January I, 2020, after receiving interest, Novotna Company sold the bonds for 370,726 after receiving interest to meet its liquidity needs. Instructions

(a) Prepare the journal entry to record the purchase of bonds on January 1 2018.

(b) Prepare the amortization schedule for the bonds.

(c) Prepare the journal entries to record the semiannual interest on July 1, 2018, and December 31, 2018.

(d) Assume that Novotna elected the fair value option for this investment. If the fair value of Aguirre bonds is 368,000 on December 31, 2018, prepare the necessary adjusting entry.

(e) Prepare the journal entry to record the sale of the bonds on January 1, 2020.