Answer:
1. March 31, 2019
Dr Investment in held-to-maturity debt securities
$413800
Dr Interest income $12,000
Cr Cash $425800
2. June 30, 2019
Dr Cash $12,000
Cr Investment in held-to-maturity debt securities
$300
Cr Interest income $11700
3. December 31, 2019
Dr Cash $24000
Cr Investment in held-to-maturity debt securities
$600
Cr Interest income $23400
2. Assets overstated
Profit overstated
Explanation:
1. Preparation of the journal entries for Brodie to record the purchase of the bonds and the first two interest receipts.
1. March 31, 2019
Dr Investment in held-to-maturity debt securities
$413800
Dr Interest income $12,000
(400000*12%*3/12)
Cr Cash $425800
(To record the purchase of held-to-maturity securities)
2. June 30, 2019
Dr Cash $12,000
(400000*12%*3/12)
Cr Investment in held-to-maturity debt securities
$300
[($12,000/10)*3/12]
Cr Interest income $11700
($12,000-$300)
(To record the interest and amortization)
3. December 31, 2019
Dr Cash $24000
(400000*12%*6/12)
Cr Investment in held-to-maturity debt securities
$600
[($12,000/10)*6/12]
Cr Interest income $23400
($24,000-$600)
(To record the interest and amortization)
2. Based on the information given assuming Brodie failed to SEPARATELY RECORD THE INTEREST AT ACQUISITION, the errors that would occur in the company’s financial statements would be OVERSTATED ASSETS in the balance sheet and the PROFIT would as well be OVERSTATED.
