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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Refer to the information in RE 13-3. Assume that on December 31, 2019, Wolfpack received interest on the Todd Corporation bonds. Wolfpack uses the straight-line method to amortize premiums and discounts. Prepare the December 31 journal entry to record the receipt of the interest.

On July 1, 2019, Wolfpack Corporation purchases securities which it intends to buy and sell frequently. These securities consisted of todd Corporation 10%, 5-year bonds with a face value of $20,000 which were purchased for $18,500. Prepare the july 1 journal entry to record the purchase of these trading securities.

To determine

Record the receipt of the interest in the books of Corporation W at December 31.

Explanation

Amortization of bond: The process of allocation and reduction of the discount or premium on bonds to interest expense over the life of bonds is referred to as amortization of bonds.

Record the receipt of the interest in the books of Corporation W at December 31.

DateAccount title and explanationDebit ($)Credit ($)
December 31Cash (1)1,000 
 Investment in trading     securities (2) 150
 Interest income 1,150
 (To record the receipt of interest)  

Table (1)

Working note (1):

Calculate the amount of cash:

Cash=Face value×Interest rate×Time=$200,000×0

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