The following information relates to the debt investments of Waterstones.

1. On March 1, the company purchased 10% bonds of Gibbons plc having a par value of 200,000 at 100 plus accrued interest. Interest is payable April 1 and October 1.

2. On May 1, semiannual interest is received.

3. On Aug 1, 8.5% bonds of Sampson, Inc. were purchased. These bonds with a par value of 200,000 were purchased at 100 plus accrued interest. Interest dates are July 1 and January 1.

4. On October 1, bonds with a par value of 60,000, purchased on February 1, are sold at 99 plus accrued interest.

5. On Nivember1, semiannual interest is received.

6. On January 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93, respectively.

Required:

1. Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these investments are managed to profit from changes in market interest rates.

2. Indicate how the journal entries will change if Waterstones classified the investments as held-for-collection and selling.

3. If Waterstones classified these as held-for-collection investments, explain how the journal entries would differ from those in part (a).

4. Assume that Waterstones elects the fair value option for these investments under the part (b) conditions. Briefly discuss how the accounting will change.