Richman Co. purchased $600,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $624,948 at an effective interest rate of 7%. Management intends to hold these bonds until they mature. Richman uses the effective interest method to account for amortization of premiums and discounts on its investments.

The fair value of the Carlin, Inc. bonds at certain key dates was:

December 31, 2014: $625,500

December 31, 2015: 612,000

Required:

a) Prepare an effective interest method amortization table for the first four interest periods under the bonds.

b) Prepare the journal entries necessary to account for this investment at each of the following dates (round your answers to whole dollars):

January 1, 2014

July 1, 2014

December 31, 2014

January 1, 2015

July 1, 2015

December 31, 2015

c) What would be different about your answers in items a) and b) if these bonds were designated as Available for Sale rather than Held to Maturity?