Question
Asked Dec 20, 2019
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Gonzalez Company acquired $200,000 of Walker Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1,
Gonzalez Company sold $70,000 of the bonds for 97.
Journalize entries to record the following in Year 1:
a. The initial acquisition of the bonds on May 1.
b. The semiannual interest received on November 1.
c. The sale of the bonds on November 1.
d. The accrual of $1,300 interest on December 31.

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Expert Answer

Step 1

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

Step 2
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(a) Prepare joumal entry for purchase of $200,000 6% bonds of Company W at face value. Post. Debit Credit Date Account Titles and Explanations Ref. (S) (S) May 1 Investments-Company W Bonds 200,000 Cash (To record purchase of Compamy W bonds for cash) 200,000 (b) Prepare joumal entry to record the semiannual interest revenue received. Post. Debit (S) 12,000 Credit Account Titles and Explanations Date Ref. (S) November 1 Cash Interest Revenue (To record receipt of interest 12,000 revenue) Working Notes: Compute amount of interest received from Company W. Amount of debt investment x Interest received = {Rate of interest x Time peri od 6 = $200,000x6%x; 12 = $12,000

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