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Entries for bond (held-to-maturity) investments The following bond investment transactions were completed by Starks Company: Jan. 31 Purchased 75, $1,000 government bonds at 100 plus accrued interest of $375 (1 month). The bonds pay 6% annual interest on July 1 and January 1. July 1 Received semiannual interest on bond investment. Aug. 30 Sold 35, $1,000 bonds at 98 plus $350 accrued interest (2 months). a. 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 an entry, leave it blank. Jan. 31 July 1 Aug. 30 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 nearest dollar. If an amount box does not require an entry, leave it blank. Dec. 31 c. Journalize the receipt of $40,000 at the bonds’ maturity on July 1. If an amount box does not require an entry, leave it blank. July. 1

Financial Accounting

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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Entries for bond (held-to-maturity) investments

The following bond investment transactions were completed by Starks Company:

Jan. 31

Purchased 75, $1,000 government bonds at 100 plus accrued interest of $375 (1 month). The bonds pay 6% annual interest on July 1 and January 1.

July 1

Received semiannual interest on bond investment.

Aug. 30

Sold 35, $1,000 bonds at 98 plus $350 accrued interest (2 months).

a. 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 an entry, leave it blank.

Jan. 31

July 1

Aug. 30

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 nearest dollar. If an amount box does not require an entry, leave it blank.

Dec. 31

c. Journalize the receipt of $40,000 at the bonds’ maturity on July 1. If an amount box does not require an entry, leave it blank.

July. 1

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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.
On January 1, a company issued a 5-year $100,000 bond at 6%. Interest payments on the bond of $6,000 are to be made annually. If the company received proceeds of $112,300, how would the bonds issuance be quoted? A. 1.123 B. 112.30 C. 0.890 D. 89.05

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