Question

On January 1, 2017, Dagwood Company purchased at par 6% bonds having a maturity value of $300,000. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. The bonds are classified in the held-to-maturity category.

(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest revenue on December 31, 2017.
(c) Prepare the journal entry to record the interest received on January 1, 2018.

Answer 1

Dagwood bonds receivables 300,000 debit

Cash 300,000 credit

--to record purchase of bonds--

Interest receivables 18,000 debit

Interest revenue 18,000 credit

--to record accrued interest on dagwood bonds--

Cash 18,000 debit

Interest receivables 18,000 credit

--to record collection of interest--

Step-by-step explanation:

as the bonds are purchased at par we pay for the same as the face value

interest for the year

principal x rate

300,000 x 6% = 18,000

at December 31th the interest are receivables as we didn't collect the cash yet

Then, on january first, we receive the cash and write-off the receivables