Question

Journalize the entries to record the following selected bond investment transactions for Starks Products: For a compound transaction, if an amount box does not require an entry, leave it blank. a. Purchased for cash $102,000 of Iceline, Inc. 7% bonds at 100 plus accrued interest of $1,190, paying interest semiannually. b. Received first semiannual interest payment. c. Sold $68,000 of the bonds at 102 plus accrued interest of $520.

Answer 1

Answer and Explanation:

The journal entries are shown below:

a)  Investment in bonds $102,000

    Interest receivable $1,190

               To Cash $103,190

(Being the purchased of bonds is recorded for cash)

For recording this we debited the investment in bonds and interest receivable as it increased the assets and credited the cash as it reduced the assets

b)  Cash Dr $3,570    ($102,000 × 7% ÷ 2)

      To Interest receivable $1,190

     To  Interest Revenue $2,380

(Being first semiannual interest payment is recorded)

For recording this we debited the cash as it increased the assets and credited the interest receivable and interest revenue as it reduced the assets and increased the revenue

c)   Cash $69,880  ($68,000 ×102% + $520)

          To Investment in bonds  $68,000

           To Interest Revenue $520

           To Gain in sale of investment $1,360

(Being the sale of the bond is recorded)

For recording this we debited the cash as it increased the assets and credited the investment in bonds and interest revenue & gains as it reduced the assets and increased the revenue