Explanation (a) Prepare journal entry for purchase of $200,000 6% bonds of Company W at face value. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) May 1 Investments–Company W Bonds 200,000 Cash 200,000 (To record purchase of Company W bonds for cash) Table (1) Explanation: Investments–Company W Bonds is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited. (b) Prepare journal entry to record the semiannual interest revenue received. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) November 1 Cash 12,000 Interest Revenue 12,000 (To record receipt of interest revenue) Table (2) Explanation: Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited. Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited. Working Notes: Compute amount of interest received from Company W. Interest received = { Amount of debt investment × Rate of interest × Time period } = $200,000×6% × 6 12 = $12,000 (c) Prepare journal entry for $70,000 bonds of Company W sold at 97%. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) November 1 Cash 67,900 Loss on Sale of Investments 2,100 Investments–Company W Bonds 70,000 (To record sale of Company W bonds) Table (3) Explanation: Cash is an asset account

Bundle: Accounting, 27th + Working Papers, Chapters 1-17

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ISBN: 9781337759892

Author: Carl Warren, James M. Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading struc…

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Chapter 15, Problem 15.1EX

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 in the books of Company G

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Chapter 15 Solutions

Bundle: Accounting, 27th + Working Papers, Chapters 1-17

Ch. 15 - Why might a business invest cash in temporary...Ch. 15 - What causes a gain or loss on the sale of a bond...Ch. 15 - When is the equity method the appropriate...Ch. 15 - How does the accounting for a dividend received...Ch. 15 - Prob. 5DQ Ch. 15 - What is the major difference in the accounting for...Ch. 15 - Prob. 7DQ Ch. 15 - How would a debit balance in Unrealized Gain...Ch. 15 - What are the factors contributing to the trend...Ch. 15 - Prob. 10DQ

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