Debt Investment Transactions, Available-for-Sale Valuation

Rekya Mart Inc. is a general merchandise retail company thatbegan operations on January 1, Year 1. The following transactionsrelate to debt investments acquired by Rekya Mart Inc., which has afiscal year ending on December 31:

Year 1
Apr. 1.	Purchased $36,000 of Smoke Bay 5%, 10-year bonds at their faceamount plus accrued interest of $300. The bonds pay interestsemiannually on February 1 and August 1.
May 16.	Purchased $116,000 of Geotherma Co. 6%, 12-year bonds at theirface amount plus accrued interest of $290. The bonds pay interestsemiannually on May 1 and November 1.
Aug. 1.	Received semiannual interest on the Smoke Bay bonds.
Sept. 1.	Sold $14,400 of Smoke Bay bonds at 104 plus accrued interest of$60.
Nov. 1.	Received semiannual interest on the Geotherma Co. bonds.
Dec. 31	Accrued $360 interest on Smoke Bay bonds.
Dec. 31	Accrued $580 interest on Geotherma Co. bonds.
Year 2
Feb. 1.	Received semiannual interest on the Smoke Bay bonds.
May 1.	Received semiannual interest on the Geotherma Co. bonds.

Required:

1. Journalize the entries to record thesetransactions. For a compound transaction, if an amount box does notrequire an entry, leave it blank.

Date	Description	Debit	Credit
Year 1
Apr. 1.
May 16.
Aug. 1.
Sept. 1.
Nov. 1.
Dec. 31 Smoke Bay
Dec. 31 Geotherma Co.
Year 2
Feb. 1.
May 1.

2. If the bond portfolio is classified asavailable for sale, what impact would this have on financialstatement disclosure?

If the bonds are classified as available-for-sale securities,then the portfolio of bonds would need to be adjusted to . Thiswould be accomplished by using a valuation allowance account andaccount.