S8-2. (Learning Objective I: Record a held-to-maturity bond investment and inter

Question

S8-2. (Learning Objective I: Record a held-to-maturity bond investment and interest when LO 1 issuedat a discount) Broadbent Insurance purchased $100,000 of 5.5% DGM bonds on January 1, 2016, at a price of 90 when the market rate of interest was 8%. Broadbent intends to hold the bonds untii their maturity date of January 1, 2021. The bonds pay interest semiannu- ally on each January i and July 1. Record the initial purchase of the bonds by Broadbent on January 1. 2016, and the receipt of the interest on the first interest payment date of July 1, 2016.

Explanation / Answer

Date Account debit credit jan 12016 Investment in bonds 90000 cash 90000 [investment made 100000*90/100] july 1 2016 cash [100000*5.5%*6/12]] 2750 Investment in bonds [3600-2750] 850 Interest income [90000*.08*6/12] 3600 [being first semiannual interest received]

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