Chapter 12 Investments (Intermediate Accounting - Spiceland) On January 1, 2018,

Question

Chapter 12 Investments (Intermediate Accounting - Spiceland)

On January 1, 2018, Tara, Inc. purchased $100,000 of Jackson Corporation bonds at a price of $95,000. The Jackson bonds pay 6% interest, but were purchased when the market interest rate for bonds of similar risk and maturity was 7%. The bonds pay interest semiannually on January 1 and July 1 of each year. Tara accounts for these bonds as a held-to-maturity security and uses the effective interest method.   
  
Prepare the necessary general journal entries to record the purchase of the Jackson bonds, the July 1 interest payment and discount amortization and the December 31 interest accrual and discount amortization.

List of Accounts

Accumulated Other Comprehensive Loss
Allowance for Loss on Debt Investment
Bonds Payable
Cash
Call Option
Common Stock
Cost of Goods Sold
Debt Investments
Dividend Revenue
Dividend Receivable
Equity Investments
Fair Value Adjustment
Futures Contract
Gain on Sale of Investments
Gain on Settlement of Call Option
Gain on Settlement of Put Option
Interest Expense
Interest Receivable
Interest Revenue
Inventory
Investment Income
Loss on Impairment
Loss on Sale of Investments
Loss on Settlement of Call Option
Loss on Settlement of Put Option
No Entry
Notes Payable
Paid-in Capital in Excess of Par - Common Stock
Put Option
Recovery of Loss from Impairment
Retained Earnings
Sales Revenue
Swap Contract
Unrealized Holding Gain or Loss - Equity
Unrealized Holding Gain or Loss - Income

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit Jan 1,2018 Debt investment 95000     Cash 95000 (To record debt investment) July 1, 2018 Cash (100000*6%*6/12) 3000 Debt investment 325      Interest revenue (95000*7%*6/12) 3325 (To record interest) Dec 31, 2018 Interest receivable 3000 Debt investment 336.375      Interest revenue (95000+325*7%*6/12) 3336.375 (To record interest )

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