# Gonzalez Company acquired $200,000 of Walker Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold$70,000 of the bonds for 97. Journalize entries to record the following in Year 1: a. The initial acquisition of the bonds on May 1. b. The semiannual interest received on November 1. c. The sale of the bonds on November 1. d. The accrual of $1,300 interest on December 31. BuyFindarrow_forward ### Financial Accounting 15th Edition Carl Warren + 2 others Publisher: Cengage Learning ISBN: 9781337272124 #### Solutions Chapter Section BuyFindarrow_forward ### Financial Accounting 15th Edition Carl Warren + 2 others Publisher: Cengage Learning ISBN: 9781337272124 Chapter 15, Problem 1E Textbook Problem 550 views ## Gonzalez Company acquired$200,000 of Walker Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $70,000 of the bonds for 97.Journalize entries to record the following in Year 1: a. The initial acquisition of the bonds on May 1. b. The semiannual interest received on November 1. c. The sale of the bonds on November 1. d. The accrual of$1,300 interest on December 31.

To determine

Journalize the bond investment transactions in the books of Company G.

### Explanation of Solution

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.

(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 ($) May 1 Investments–Company W Bonds 200,000 Cash 200,000 (To record purchase of Company W bonds for cash) Table (1) • Investments–Company W Bonds is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited. • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited. (b) Prepare journal entry to record the semiannual interest revenue received.  Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) November 1 Cash 6,000 Interest Revenue 6,000 (To record receipt of interest revenue) Table (2) • 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%×612= $6,000 (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)

• Cash is an asset account

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