Question

On April 1, 2020, the Reba Company purchased 10%, $800,000 bonds of the Trading Up Company at par plus accrued interest. These bonds were classified as an investment in trading securities. The bonds pay interest on June 30 and December 31 each year. The entry by Reba on April 1, 2020, would include a

Answer 1

The entry by Reba on April 1, 2020, would include a debit to the investment in trading securities account for the cost of the bonds, which is $800,000 plus any accrued interest, and a credit to the cash account for the same amount.

The entry would be:

Debit Investment in Trading Securities: $800,000 + Accrued Interest

Credit Cash: $800,000 + Accrued Interest

Note: The accrued interest would depend on the number of days from the last interest payment date, which in this case would be December 31 of the previous year, to the date of purchase (April 1). The amount of accrued interest would be calculated as (face value of bonds × annual interest rate × number of days since last interest payment) / 360.

Answer 2

Answer: Your welcome!

Step-by-step explanation:

The entry by Reba on April 1, 2020, would include a debit to the Investment in Trading Securities account for $800,000 and a credit to Cash for $800,000 plus any accrued interest. The debit to Investment in Trading Securities represents Reba's purchase of the bonds at par and the credit to Cash represents the payment of the purchase price.