Concept explainers
(a)
Bond investment: Bond investments are debt securities which pay a fixed interest revenue to the investor.
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 transaction for purchase of $200,000, 5% bonds of Company M at face value on May 1
(b)
To journalize: The bond investment transaction to record the semiannual interest revenue received on November 1
(c)
To journalize: The bond investment transaction $80,000 bonds of Company M sold at 98%, on November 1
(d)
To journalize: The bond investment transaction for accrued interest of $1,000 on December 31
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Chapter D Solutions
Corporate Financial Accounting
- Parilo Company acquired 170,000 of Makofske Co., 5% bonds on May 1, 2016, at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, 2016, Parilo Company sold 50,000 of the bonds for 96. Journalize entries to record the following: 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 1,000 interest on December 31, 2016.arrow_forwardTransfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.arrow_forwardREDEMPTION 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).arrow_forward
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