Question

Bond Investment Transactions

Journalize the entries to record the following selected bond investment transactions for Starks Products:

For a compound transaction, if an amount box does not require an entry, leave it blank.

a. Purchased for cash $120,000 of Iceline, Inc. 5% bonds at 100 plus accrued interest of $1,000.

b. Received first semiannual interest payment.

c. Sold $60,000 of the bonds at 101 plus accrued interest of $500.

Answer 1

The student's question relates to journal entries for bond investment transactions, including purchasing bonds, receiving interest, and selling bonds. Each transaction would be recorded uniquely in the company's financial books, with debits and credits corresponding to the nature of the transaction.

Step-by-step explanation:

The subject of the question revolves around journalizing bond investment transactions for a company called Starks Products. We'll look at three separate transactions that include purchasing bonds, receiving interest payments, and selling part of the bonds. Here's how these would be recorded in the company's journal:

1. Purchase of bonds: On purchase, the company would debit Investment in Bonds for the face value of the bonds ($120,000) and Interest Receivable for the accrued interest ($1,000), and credit Cash for the total amount paid ($121,000).
2. Receipt of semiannual interest payment: Upon receipt of the interest payment, the company would debit Cash for the amount received and credit Interest Revenue for the same amount.
3. Sale of bonds: When selling the bonds, the company would debit Cash for the proceeds of the sale ($60,600) and credit Investment in Bonds for the face value of the bonds being sold ($60,000) and Gain on Sale of Bonds for the gain on sale ($600).

Note that transaction details like the exact interest payment and the accounting for any gain on the sale of the bonds would depend on the specific terms of the bonds and the amount of interest accrued at the time of the transactions.

Answer 2

Step-by-step explanation:

The journal entries are shown below:

a) Investment in bonds Dr A/c$120000

Interest receivable Dr A/c$ 1000

To Cash A/c $121000

(purchased of 5% bonds with accrued interest of $1000 on the bonds for cash is recorded)

b) Cash Dr. A/c $3000 ($120,000 × 5% × 6 months ÷ 12 months)

To Interest receivable A/c $1000

To Interest Revenue A/c $2000

(Being the first semiannual interest payment is received)

c) Cash Dr A/c $61100 ($60,000 × 101 + $500)

To Investment in bonds $60000

To Interest Revenue $ 500

To Gain in sale of investment $600

( Being the sale of bond with accrued interest of $500 is recorded and the remaining amount will be credited to the gain in sale of investment)