(TCO B) On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds—with intere

Question

(TCO B) On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds—with interest payable on January 1 and July 1—for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and rounded to the nearest dollar). (Assume bonds are available for sale.) Instructions: (a) Prepare the entry for May 1, 2010. (b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.

Explanation / Answer

Account titles debit credit A. Available for sale securities
Interest revenue (450000*.12*4/12)
Cash $422800
$18000

$440800 B. Available for sale securities (27200÷68×1)
Interest revenue $400
$400 Cash (450000*.12*1/12)
Interest revenue $4500
$4500 Cash
Loss on sale of securities
Available for sale securities
422800+[(27200/68)*15]
$425000
$3800


$428800

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