Question

On September 1, the Consul Company acquired $10,000 face value, 8% bonds of Envoy Corporation at 104. The bonds were dated May 1 and mature in 5 years on April 30, with interest payable each October 31 and April 30. What entry should Consul make to record the purchase of the bonds

A. Investment in bonds $10,400

Interest receivable 266

Cash $10,666

B. Investment in bonds $10,666

Cash $10,666

C. Investment in bonds $10,666

Accrued interest 266

Cash 10,400

D. Investment in bonds $10,000

Premium on bonds 666

Cash $10,666

Answer 1

Answer:

correct option is A. Investment in bonds $10,400

Interest receivable 266

Cash $10,666

Explanation:

given data

face value = $10,000  

bonds = 8%

mature time =  5 years

solution

we know at At 104

price paid for the bonds =  $10,400 in absence of accrued interest

this is because of bond that is purchase between interest date and cash interest  for time May 1 to September 1 4 months

and here interest will be for 4 month is

interest = face value × bonds rate × timer

interest = $10000  × 8%  × $\frac{4}{12}$

interest = $266.67

so total amount paid will be

total amount paid = $10400 + $266.67

total amount paid = $10666.67

as on October 31 interest received  here interest receivable will credit of $266

so correct option is A. Investment in bonds $10,400

Interest receivable 266

Cash $10,666