Problem:
On January 1, 2013, Hi and Lois Company purchased 13% bonds, having a maturity value of $510,100, for $568,109.95. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.
Required:
Question 1: Prepare the journal entry at the date of the bond purchase.
Question 2: Prepare the journal entries to record the interest received and recognition of fair value for 2013.
Question 3: Prepare the journal entry to record the recognition of fair value for 2014.
Note: Please show the work not just the answer.