Reference no: EM132583468

Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale.

                                     12/31/15                   12/31/16                   12/31/17

Amortized cost                 $185,500                   $193,300             $200,000

Fair value                       $181,000                    $196,000                    $200,000

Required:

Question 1: Indicate, with a reason, whether the bonds were purchased at a discount or a premium.

Question 2: Prepare the adjusting entry to record the bonds at fair value at December 31, 2015. The Securities Fair Value Adjustment account has a debit balance of $4,000 prior to adjustment.

Question 3: Prepare adjusting entry to record the bonds at fair value at December 31, 2016.