Explanation 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 $160,000 5% bonds of Corporation M at face value. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) October 1 Investments–Corporation M Bonds 160,000 Cash 160,000 (To record purchase of bonds for cash) Table (1) Investments–Corporation M Bonds is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited. (b) Prepare journal entry for accrued interest. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) December 31 Interest Receivable 2,000 Interest Revenue 2,000 (To record interest accrued) Table (2) Interest Receivable is an asset account. Since interest to be received has increased, asset value 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 accrued on December 31, Year 1. Interest accrued = { Amount of debt investment× Rate of interest × Time period ( October 1 to December 31 ) } = $160,000×5% × 3 12 = $2,000 (c) Prepare journal entry to record the interest revenue received. Date Account Titles and Explanations Post

15th Edition

ISBN: 9781337272124

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 2E

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Journalize the bond investment transactions in the books of T Investments.

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Chapter 15 Solutions

Financial Accounting

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Journalize the bond investment transactions in the books of T Investments.

Solution Summary: The author explains that journal entry is a set of economic events which can be measured in monetary terms.

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Journalize the bond investment transactions in the books of T Investments.

Chapter 15 Solutions