Question

7. On January ​1, 2018​, the Myrth Corporation decides to invest in Small Town bonds. The bonds mature on December ​31, 2024​, and pay interest of 7​% on June 30 and December 31. The market rate of interest was 7​% on January ​1, 2018​, so the $ 60 comma 000 ​maturity-value bonds sold for face value. Myrth Corporation intends to hold the bonds until maturity. Journalize the transactions related to Myrth ​Corporation's investment in Small Town bonds during 2018

Answer 1

Answer:

Journal Entries

Date                       Accounts & Explanations        Debit ($)        Credit ($)

Jan 1 2018              Bonds receivables                    60,000

                              Cash                                                                60,000

                              (Investment in bonds)

30-Jun-18              Cash                                            2,100

                              Interest income                                               2,100

                              (6 month interest received)

31-Dec-18               Cash                                           2,100

                              Interest income                                                2,100

                              (6 month interest received)

Explanation:

Bond Value  = $60,000

Interest rate  = 7%

Interest earned half yearly, effective rate  = 7% × 6/12 = 3.5%

Half Yearly interest amount  = 60,000 x 3.5% =$2100

Journal Entries

Date                       Accounts & Explanations        Debit ($)        Credit ($)

Jan 1 2018              Bonds receivables                    60,000

                              Cash                                                                60,000

                              (Investment in bonds)

30-Jun-18              Cash                                            2,100

                              Interest income                                               2,100

                              (6 month interest received)

31-Dec-18               Cash                                           2,100

                              Interest income                                                2,100

                              (6 month interest received)