Problem:
Watney Inc. purchased $14,000 of 5% Hamel bonds at par on July 1, 2013. The bonds pay interest semiannually. Watney intends to hold the Hamel bonds for the life of the bonds. During the second half of 2013, an increase in interest rates reduced the fair value of the bonds to $12,600.
Required:
Question 1: Prepare a journal entry to record Watney's receipt of six months of interest revenue.
Question 2: Prepare a journal entry (if any is required) to record any unrealized gains or losses on the Hamel bonds during 2013.
Note: Be sure to show how you arrived at your answer.