Problem 1 - HTM Investments (10 Points) On May 1 of the current year, a company

Question

Problem 1 - HTM Investments (10 Points) On May 1 of the current year, a company paid $200,000 to purchase 7%, 10-year bonds with a par value of $200,000; interest is paid semiannually on May 1 and November 1. The company int bonds until they mature. Prepare the journal entries to record (1) the bond purchase, (2) the receipt of the first semiannual interest payment on September 1 of the current year, (3) the accrual of interest for year- end December 31, and (4) the receipt of the second semiannual payment on May 1

Explanation / Answer

Date Accounting title & Explanations Debit Credit 1-May Bond investment 200,000 cash 200,000 1-Nov cash interest income 7000 (200,000*7%*1/2) 7,000 31-Dec interest receivable 2,333 interest income (200,000*7%*2/12) 2,333 1-May cash 7,000 interest receivable 2,333 interest income 4667

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