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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Bond investment transactions

Journalize the entries to record the following selected bond investment transactions for Starks Products:

a. Purchased for cash $120,000 of Iceline, Inc. 5% bonds at 100 plus accrued interest of $1,000.

b. Received first semiannual interest payment.

c. Sold $60,000 of the bonds at 101 plus accrued interest of $500.

(a)

To determine

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.

To journalize: The bond investment transactions of S Products

Explanation

  • Investments–I Incorporation is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited.
  • Interest Receivable is an asset account...

(b)

To determine

To journalize: Prepare journal entry to record the interest revenue received.

(c)

To determine

To journalize: Prepare journal entry for $60,000 bonds of I International sold at 101%, with an accrued interest of $100.

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