Ruben Company's journal entries:
1. Purchase: Debit Bonds $101,500, Credit Cash $101,500.
2. Semiannual Interest: Debit Cash $4,000, Credit Interest Revenue $4,000.
To journalize the purchase of the bonds and the first semiannual interest payment, we'll consider two transactions: one for the purchase of the bonds and another for the interest payment.
Purchase of Bonds:
When Ruben Company purchased the bonds from Evans Company, they paid $100,000 for the bonds and also paid accrued interest of $1,500. The entry for this transaction would be:
Debit: Investments (or Bonds) - $101,500
Credit: Cash - $101,500
This entry reflects the increase in the investment account (Bonds) and the decrease in cash by the total amount paid for the bonds and the accrued interest.
First Semiannual Interest Payment:
At the end of the first semiannual period, Ruben Company would receive interest on the bonds. Since the bond interest rate is 8% and interest is paid semiannually, the calculation for the interest payment can be done as follows:
Principal amount of the bond = $100,000
Interest rate = 8% per annum (semiannual payment = 4% of the principal)
Interest for the first semiannual period = $100,000 * 4% = $4,000
The journal entry for the first semiannual interest payment would be:
Debit: Cash - $4,000
Credit: Interest Revenue (or Bond Interest Income) - $4,000
This entry records the receipt of interest income from the bonds.
These journal entries account for the initial purchase of the bonds and the subsequent receipt of the first semiannual interest payment by Ruben Company.