On August 31, 2010, Merry Company acquired four $1,000 face value bonds with a 10% interest rate at face value plus accrued interest. Interest on the bonds is paid semiannually on March 31 and September 30. At December 31, 2010, the bonds are quoted at 96. The decline in value is deemed temporary. Assume that the bonds were classified as available for sale.
a. Prepare the journal entries to record Merry's transactions in temporary investments in bonds for 2010.
b. Now assume that the bonds were sold on December 31 at 96 plus accrued interest. Prepare the journal entry to reflect this transaction.