Question

On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-year bonds with a face value of $12,000 at par plus four months of accrued interest. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Required: Prepare the June 30 journal entries to record the receipt

Answer 1

Date Account Title Debit Credit

April 30,2019 Held to Maturity investment $12,000

Interest receivable $400

Cash $12,400

Interest receivable:

4 months of accrued interest:

= 12,000 * 4/12 * 10%

= $400

Date Account Title Debit Credit

June 30,2019 Cash $600

Interest receivable $400

Interest revenue $200

Interest revenue

2 months have passed:

= 12,000 * 2/12 * 10%

= $200