Question

Gonzalez Company acquired $153,600 of Walker Co., 8% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $43,200 of the bonds for 98.Journalize entries to record the following in Year 1 (refer to the Chart of Accounts for exact wording of account titles):a. The initial acquisition of the bonds on May 1.b. The semiannual interest received on November 1.c. The sale of the bonds on November 1.d. The accrual of $1,300 interest on December 31.

Answer 1

The Journal entries are as follows:

(i) On may 1,

Investment - Walker Co. A/c Dr. $153,600

To cash $153,600

(To record the initial acquisition of the bonds)

(ii) On November 1,

Cash A/c( $153,600 × 8% × 6/12) Dr. $6,144

To Interest revenue $6,144

(To record the semiannual interest received)

(iii) On November 1,

Cash A/c ($43,200 × 98%) Dr. $30,240

Loss on sale of investment A/c Dr. $12,960

To Investment - Walker Co. $43,200

(To record the sale of the bonds)

(iv) On December 31,

Interest receivable A/c Dr. $1,300

To Interest revenue $1,300

(To record the accrual of $1,300 interest)