Quiroz Associates acquired $7,570,000 par? value, 4%?, ?20-year bonds on their date of? issue, January 1 of the current year.

The market rate at the time of issue is 18% and interest is paid semiannually on June 30 and December 31. Quiroz uses the effective interest rate method to account for this investment. Quiroz does not intend to hold the investment until maturity nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $5,197,600. The purchase price of the investment in bonds is $1,869,675. The fair value? adjustment-available-for-sale debt investment account has a debit balance of $3,292,665 at the end of the year of acquisition.

Prepare the fair value adjustment journal entries at the end of the second and third years after the acquisition of the investment assuming that the fair value of the bonds is equal to $5,140,000 at the end of year 2 and $505,860 at the end of year three.