Question

7. On January ​1, 2018​, the Myrth Corporation decides to invest in Small Town bonds. The bonds mature on December ​31, 2024​, and pay interest of 7​% on June 30 and December 31. The market rate of interest was 7​% on January ​1, 2018​, so the $ 60 comma 000 ​maturity-value bonds sold for face value. Myrth Corporation intends to hold the bonds until maturity. Journalize the transactions related to Myrth ​Corporation's investment in Small Town bonds during 2018

Answer 1

Journal Entries

Date Accounts & Explanations Debit ($) Credit ($)

Jan 1 2018 Bonds receivables 60,000

Cash 60,000

(Investment in bonds)

30-Jun-18 Cash 2,100

Interest income 2,100

(6 month interest received)

31-Dec-18 Cash 2,100

Interest income 2,100

(6 month interest received)

Step-by-step explanation:

Bond Value = $60,000

Interest rate = 7%

Interest earned half yearly, effective rate = 7% × 6/12 = 3.5%

Half Yearly interest amount = 60,000 x 3.5% =$2100

Journal Entries

Date Accounts & Explanations Debit ($) Credit ($)

Jan 1 2018 Bonds receivables 60,000

Cash 60,000

(Investment in bonds)

30-Jun-18 Cash 2,100

Interest income 2,100

(6 month interest received)

31-Dec-18 Cash 2,100

Interest income 2,100

(6 month interest received)