Answer:
31st Jan 2016
Dr Bond Receivable 75,000
Dr Interest Receivable 375
Cr Cash 75,375
(to record the bond purchase)
* working note: Bond proceed = 75 x 1,000 = 75,000; Interest receivable = 75,000 x 6% x 30/360 = 375)
1st Jul 2016
Dr Cash 2,250
Cr Interest Income 1,875
Cr Interest Receivable 375
(to record interest receipt on bonds holding, in which 5 months of it ( 75,000 x 6% x 5/12 is recorded as Income, the other one is recorded as collection of Income earned by the bond's seller)
29th Aug 2016
Dr Cash 34,650
Dr Loss on bond Investment 700
Cr Interest income 350
Cr Bond Receivable 35,000
( to record the Sold 35, $1,000 bonds at 98% plus $350 accrued interest = 35,000 x 98% + 350 = 34,650)
31st Dec 2016
Dr Interest Receivable 1,200
Cr Interest Income 1,200
( to record the interest earned on 40,000 bonds outstanding)
Explanation:
