Bocelli Co. purchased $120,000 of 6%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $30,000 of the Sanz County bonds at 99 plus $150 accrued interest less a $100 brokerage commission.Provide journal entries for the following:a. The purchase of the bonds on May 11 plus 40 days of accrued interest.b. Semiannual interest on October 1.c. Sale of the bonds on October 31.d. Adjusting entry for accrued interest of $1,365 on December 31, Year 1.

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Asked Dec 20, 2019
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Bocelli Co. purchased $120,000 of 6%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $30,000 of the Sanz County bonds at 99 plus $150 accrued interest less a $100 brokerage commission.
Provide journal entries for the following:
a. The purchase of the bonds on May 11 plus 40 days of accrued interest.
b. Semiannual interest on October 1.
c. Sale of the bonds on October 31.
d. Adjusting entry for accrued interest of $1,365 on December 31, Year 1.

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Expert Answer

Step 1

Bond investment: Bond investments are debt securities which pay a fixed interest revenue to the investor.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Step 2

Journalize the bond investment transactions in the books of Corporation B

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Prepare joumal entry for purchase of $120,000 6% bonds of County S at face value with an accrued interest for 40 days. Post. Account Titles and Explanations Date Debit (S) Credit (S) Ref. May 11 Investments-County S Bonds 120,000 Interest Receivable 800 Cash 120,800 (To record purchase of bonds for cash)

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Step 3

Working Notes:

&...

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Compute amount of interest accrued for 40 days. (Amount of debt investment x Interest accrued= {Rate of interest x Time period 40 days = $120,000x6% x, 360 days = $800

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