My question is on b only. I understand (or think I do) that at the purchase of a
ID: 2468975 • Letter: M
Question
My question is on b only.
I understand (or think I do) that at the purchase of a bond the purchaser must pay the accrued interest, but will get that amount back when they receive the first interest payment. My question is, why is that amount subtracted from the first interest payment instead of added, if they are getting it back?
Meaning, why would the entry be;
Cash 3,000
Interest Receivable 1,000
Interest Revenue 2,000
Instead of;
Cash 4,000
Interest Receivable 1,000
Interest Revenue 3,000 (120,000 x 5% x 1/2)
Journalize the entries to record the following selected bond investment transactions for Starks Products:
a. Purchased for cash $120,000 of Iceline, Inc. 5% bonds at 100 plus accrued interest of $1,000a. .
b. Received first semiannual interest payment.
c. Sold $60,000 of the bonds at 101 plus accrued interest of $500
.
Explanation / Answer
entry will be:
cash Dr. $3000
To interest revenue $2000
To Accounts payable $1000
As interest earned for the time before the purchase of investment is not our revenue. So It wont be recorded as revenue
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