Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
On January 1, 2019, Gatrong Corporation purchased 12%, 5-year Fleming Corporation bonds will a face value of $200,000. It expects to hold these bonds until maturity. The bonds pay interest semiannually on June 30 and December 31. Gatrong paid $215,443, a price that yields a 10% effective annual interest rate. Prepare the journal entry of Gatrong to record the purchase of the bonds.
Refer to the information in RE 13-1. Prepare the journal entry on June 30 for Gatrong to record the first interest receipt, using the effective interest method. Round to the nearest dollar.
Record the journal entry for the first interest payment under the effective interest method in the books of Corporation G on June 30.
Effective interest method:
When amortization value is equal to difference between the interest income amount and the cash receipt it is termed as the effective interest method.
Record the journal entry for the first interest payment under the effective interest method in the books of Corporation G on June 30.
| Date | Account title and explanation | Debit ($) | Credit ($) |
| June 30 | Cash (1) | 12,000 | Â |
| Â | Investment in held-to-maturity debt securities | Â | 1,228 |
| Â | Interest income (2) | Â | 10,772 |
| Â | (To record the receipt of first interest) | Â | Â |
Table (1)
Working note (1):
Calculate the amount of cash:
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