b. Journalize the December 31 adjusting entry for semiannual interest earned on the bonds. Assume a 360-day year. Do not round interim calculations. Round final answers to nearestdollar. If an amount box does not require an entry, leave it blank.Dec. 31 Interest Receivable✓Interest RevenueFeedback✓ Check My Workb. Remember to accrue the interest only on the remaining bonds after the sale. Use the same formula as in part a adjusted for the appropriate time period.c. Journalize the receipt of $15,000 at the bonds' maturity on July 1. If an amount box does not require an entry, leave it blank.July. 1Feedback✓ Check My WorkIncorrect >Entries for bond (held-to-maturity) investmentsThe following bond investment transactions were completed by Starks Company:Jan. 31Purchased 24, $1,000 government bonds at 100 plus accrued interest of $120 (1 month). The bonds pay 6% annual interest onJuly 1 and January 1.Received semiannual interest on bond investment.Sold 9, $1,000 bonds at 98 plus $90 accrued interest (2 months).July 1Aug. 30a. Journalize the entries for these transactions. Assume a 360-day year. Do not round interim calculations. Round final answers to nearest dollar. If an amount box does not require anentry, leave it blank.Jan. 31 Investments-Government BondsInterest Receivable ✓✓Cash✓July 1Cash✓Interest ReceivableInterest RevenueAug. 30 CashLoss on Sale of InvestmentsInterest Revenue✓000 000 000100 000 00024,0008,91024,100 X

Lets understand the basics. Journal entry is required to make to record event and tranasction in…

Answered: b. Journalize the December 31 adjusting…

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter15: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 4E

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Waldron Inc. issued $400,000 bonds with a stated rate of 7% when the market rate was 5%. They are 3-year bonds with interest to be paid annually. Prepare a table to amortize the premium of the bonds. Assume that the bonds were issued for $421,844.
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.

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