Question

Bond Investment Transactions

Journalize the entries to record the following selected bond investment transactions for Starks Products:

For a compound transaction, if an amount box does not require an entry, leave it blank.

a. Purchased for cash $120,000 of Iceline, Inc. 5% bonds at 100 plus accrued interest of $1,000.

b. Received first semiannual interest payment.

c. Sold $60,000 of the bonds at 101 plus accrued interest of $500.

Answer 1

Answer:

Explanation:

The journal entries are shown below:

a) Investment in bonds Dr A/c$120000

  Interest receivable Dr A/c$ 1000

         To Cash A/c $121000

(purchased of 5% bonds with accrued interest of $1000 on the bonds for cash is recorded)

b) Cash Dr. A/c $3000         ($120,000 × 5% × 6 months ÷ 12 months)

         To Interest receivable A/c $1000

          To Interest Revenue A/c $2000

(Being the first semiannual interest payment is received)

c)  Cash Dr A/c $61100       ($60,000 × 101 + $500)

               To Investment in bonds $60000

               To Interest Revenue $ 500

                To Gain in sale of investment $600

( Being the sale of bond with accrued interest of $500 is recorded and the remaining amount will be credited to the gain in sale of investment)