Final answer:
To record the purchase of the bonds, a debit to Accrued Interest Receivable for the amount of interest accrued from the last payment until May 1 and a credit to Cash should be made. The exact amount of accrued interest cannot be determined without the exact purchase date.
Step-by-step explanation:
To determine the journal entry for the purchase of bonds by the City of Valley Ridge Scholarship Fund on May 1 with semiannual interest payments on March 1 and September 1, we need to calculate any accrued interest receivable from the last payment date until the purchase date. Since the question does not provide the specific date of purchase or last interest payment, a general approach will be used to explain how to calculate and record the entry.
The bonds earn 5% annual interest, which means semiannual interest (half-yearly) is 2.5%. If we suppose that the last interest payment was made on March 1 and the bonds were purchased on May 1, then the interest has been accruing for two months. The accrued interest receivable for the fund would be calculated by multiplying the pro-rata interest rate for two months with the bond price. However, since the exact date is not provided, we cannot specify the exact amount in our answer.
The journal entry should include a debit to Accrued Interest Receivable for the amount of interest that has accrued from March 1 to the purchase date (amount cannot be provided due to lack of precise dates), and a credit to Cash for the bond price plus the accrued interest.