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Prepare the journal entry to record the purchase of bonds

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Question - On January 1, 2014, Novotna Company purchased $448,600, 6% bonds of Aguirre Co. for $395,356. The bonds were purchased to yield 9% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2019. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2016, Novotna Company sold the bonds for $396,989 after receiving interest to meet its liquidity needs.

Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale.

Reference no: EM132104617

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