Question

On September 1, Parsons Company purchased $84,000, 10-year, 7% government bonds at 100 plus accrued interest. The semiannual interest payment dates are June 30 and December 31. Interest calculations are done by the month. Required: a. Journalize the entry to record the bond purchase. b. Journalize the receipt of interest on December 31 of the first year. c. Journalize the sale of the bonds on February 1 of the second year for $82,000 plus accrued interest. If an amount box does not require an entry, leave it blank.

Answer 1

Answer:

See the explanation below.

Explanation:

a. Journalize the entry to record the bond purchase.

Debit: Investment in government bonds $84,000

Debit: interest receivable $980  

Credit: Cash $84,980

Being government bond purchase and interest receivable

Note:

Interest receivable = 84000 * 7% * (2/12) =$980

b. Journalize the receipt of interest on December 31 of the first year.

Debit: Cash $2,940

Credit: Interest receivable $980

Credit: Interest income $1,900

Being interest received on government bond

Note:

Interest income = 84,000 * 7% * (6/12) = $1,900

c. Journalize the sale of the bonds on February 1 of the second year for $82,000 plus accrued interest.

Debit: Cash 82,490

Debit: Loss on sale of bond $2,000

Credit: Investment government bonds $84,000

Credit: Interest income $490

Being the sales of bond plus accrued interest.

Note:

Also find attached a file as a complement to the above to see how the journal entries will appear in the book.