Question

Bocelli Co. purchased $120,000 of 6%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $30,000 of the Sanz County bonds at 99 plus $150 accrued interest less a $100 brokerage commission. Provide journal entries for the following:

a. The purchase of the bonds on May 11 plus 40 days of accrued interest; assume a 360-day year.
b. Semiannual interest on October 1.
c. Sale of the bonds on October 31.
d. Adjusting entry for accrued interest of $1,365 on December 31, Year 1.

Answer 1

The journal entries for the purchase, semiannual interest payment, sale, and adjusting entry of Sanz County bonds are provided.

Step-by-step explanation:

a. The journal entry for the purchase of the bonds on May 11 plus 40 days of accrued interest is:

Debit: Investments in Sanz County Bonds $120,000

Credit: Cash $120,000

b. The journal entry for the semiannual interest on October 1 is:

Debit: Interest Receivable $3,600 ([$120,000 x 6%] x 40/360)

Credit: Investment in Sanz County Bonds $3,600

c. The journal entry for the sale of the bonds on October 31 is:

Debit: Cash $30,000 + $150 = $30,150

Debit: Brokerage Commission $100

Credit: Investment in Sanz County Bonds $30,000

Credit: Interest Receivable $150

Credit: Gain on Sale of Bonds $50 ([$30,000 - (($120,000 + $150) x (40/180))] - $100)

d. The adjusting entry for accrued interest of $1,365 on December 31, Year 1 is:

Debit: Accrued Interest Receivable $1,365

Credit: Interest Revenue $1,365

Answer 2

S/n General journal Debit Credit

a Investment in Sanz County bonds $120,000

Interest $800

(120,000*6%*40/360)

Cash $120,800

(The purchase of the bonds on May 11 plus 40 days of accrued

interest; assume a 360-day year.)

b. Cash $3,600

Interest receivable $800

Interest revenue $2,800

(Semiannual interest on October 1)

c. Cash(150* (99%*30,000) - $100) $29,750

Loss on sale of investments $400

Investment in Sanz County bonds $30,000

Interest revenue $150

(Sale of the bonds on October 31)

d. Interest receivables $1,365

Interest revenue $1,365

(Adjusting entry for accrued interest of $1,365 on

December 31, Year 1.)