1. On January 1, 2006, Jamona Corp. purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2006, and mature January 1, 2011, with interest receivable December 31 of each year. The company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale. The fair value of the bonds at December 31 of each year is as follows: 2006 - $320,500 2007 - $309,000 2008 - $308,000 2009 - $310,000 2010 - $300,000
(a) January 1, 2006
Available-for-Sale Securities....................................................... 322,744.44
Cash.................................................................................... 322,744.44
(b) December 31, 2006
Cash .................................................................................. 36,000
Available-for-Sale Securities............................................. 3,725.56
Interest Revenue ($322,744.44 X .10).............................. 32,274.44
Securities Fair Value Adjustment
(Available-for-Sale) 1,481