Question - On July 31, 2015 Marquis Inc. purchased 7%, $150,000, 10-year bonds. Interest is paid annually on December 31. Marquis uses the amortized cost model and the effective interest method for amortizing premium or discount. The current market rate was 8% and as a result Marquis paid $139,935 for the bonds. On December 31, 2015, the bonds have a market value of $135,000. The bonds had a market value of $138,000 on December 31, 2016.
Instructions - Assuming the company uses amortized cost to account for the investment:
a) Record the receipt of interest and amortization of the discount for 2015 and 2016.
b) Record any year-end adjustments required.