Explanation (a) Prepare journal entry for purchase of $120,000 6% bonds of County S at face value with an accrued interest for 40 days. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) May 11 Investments–County S Bonds 120,000 Interest Receivable 800 Cash 120,800 (To record purchase of bonds for cash) Table (1) Explanation: Investments–County S Bonds 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. Since interest to be received has increased, 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. Working Notes: Compute amount of interest accrued for 40 days. Interest accrued = { Amount of debt investment × Rate of interest × Time period } ` ` = $120,000×6% × 40 days 360 days = $800 (b) Prepare journal entry to record the interest revenue received. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) October 1 Cash 3,600 Interest Receivable 800 Interest Revenue 2,800 (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 Receivable is an asset account. Since interest accrued on May 11 is received, asset value decreased, and a decrease in asset is credited. 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 County S bonds. Interest received = { Amount of debt investment × Rate of interest × Time period } = $120,000×6% × 6 12 = $3,600 (c) Prepare journal entry for $30,000 bonds sold at 99%, with an accrued interest of $150 and a brokerage of $100

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that ba…

Question

Chapter 15, Problem 15.3EX

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 Corporation B

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Chapter 15 Solutions

Accounting

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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REDEMPTION OF BONDS ISSUED AT A PREMIUM Brighton Unlimited sold bonds at a premium for 630,000 (premium of 30,000) eight years ago. (a) The corporation redeems 60,000 of this issue at 98. The unamortized premium is 600. (b) The corporation redeems 90,000 of this issue at 102. The unamortized premium is 900. Prepare journal entries to record the redemption in (a) and (b).
REDEMPTION OF BONDS ISSUED AT FACE VALUE Levesque Lumber Co. issued 800,000 in bonds at face value 10 years ago and has paid semiannual interest payments through the years. (a) Assume the bonds are redeemed at face value. (b) Assume that 80,000 of the bonds are redeemed at 104. (c) Assume that 80,000 of the bonds are redeemed at 96. Prepare journal entries to record (a), (b), and (c).
MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.

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Solution Summary: The author explains that bonds are debt securities which pay fixed interest revenue to the investor. Journal entry is a set of economic events which can be measured in monetary terms.

Concept explainers

Chapter 15 Solutions