Question

The following transactions for Wolfe Corporation relate to long-term bonds classified as available-for-sale: 2018 Jan. 1 Purchased $50,000 Lake Corporation 10% bonds for $50,000. July 1 Received interest on Lake bonds. Dec. 31 Accrued interest on Lake bonds. Dec. 31 Market value of the bonds $55,000, prepare the adjusting entry to record bonds at market value. 2019 Jan. 1 Received interest on Lake bonds. Jan. 1 Sold $25,000 Lake bonds for $26,650. July 1 Received interest on Lake bonds. a) Journalize the transactions.

Answer 1

2018 Jan. 1 Purchased $50,000 Lake Corporation 10% bonds for $50,000.

• Dr 10% bonds available for sale 50,000
• Cr Cash 50,000

available for sale

July 1 Received interest on Lake bonds.

• Dr Cash 2,500
• Cr Interest revenue on 10% bonds available for sale 2,500

Dec. 31 Accrued interest on Lake bonds.

• Dr Interest receivable 10% bonds available for sale 2,500
• Cr Interest revenue 10% bonds available for sale 2,500

Dec. 31 Market value of the bonds $55,000, prepare the adjusting entry to record bonds at market value. 2019

• Dr 10% bonds available for sale 5,000
• Cr Unrealized gain - other comprehensive income 5,000

Jan. 1 Received interest on Lake bonds.

• Dr Cash 2,500
• Cr Interest receivable on 10% bonds available for sale 2,500

Jan. 1 Sold $25,000 Lake bonds for $26,650.

• Dr Cash 26,650
• Dr Unrealized gain - other comprehensive income 2,500
• Cr 10% bonds available for sale 27,500
• Cr Realized gain on 10% bonds available for sale 1,650

July 1 Received interest on Lake bonds.

• Dr Cash 1,250
• Cr Interest receivable on 10% bonds available for sale 1,250