Jan. 21. Purchased 50, $1,000 par value government bound at 100 plus 20 days\' a

Question

Jan. 21. Purchased 50, $1,000 par value government bound at 100 plus 20 days' accrued interest. The bond pay 4.5% annual interest on June 30 and January 1 June 30 Received semiannual interest on bond investment Sept. 5 Sold 24, $1,000 par value bounds at 97 plus $201 accrued interest Journalize the entries for these transactions. Assume a 360-day year. Do not round interim calculations. Round final answers to nearest dollar. For a compound transaction, if an Provide the December 31, 2012, adjusting journal entry for semiannual interest earned from the bond coupon.

Explanation / Answer

purchase amount = 1000*50 + 50*1000*.045*20/360 = 50,000 + 125 = 50,125 Jan 21 Debit: Bonds receivable 50,000 Credit: Interest receivable 125 Credit: Cash 50,125 Semiannual interest = 50,000*0.045*0.5 = 1125 June 30 Debit: Cash 1125 Credit: Interest revenue 1000 Credit: Interest Receivable 125 cash received = 24,000*.97 + 201 = 23,481 Sept 31 Debit: Cash 23,481 Debit: Loss on sale of bonds 720 Credit: Bonds receivable 24,000 Credit: Interest revenue 201 Interest accrued from June 30 to Dec 31: 26,000*0.045*.5 = 585 Dec. 31 Debit: Interest receivable 585 Credit: Interest earned 585

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