Question

Kurtyka Corporation had the following transactions relating to debt investments: Jan. 1, 2017 Purchased 60, $1,350, 15% Spiller Company bonds for $81,000. Interest is payable annually on January 1. Dec. 31, 2017 Accrued interest on Spiller Company bonds. Jan. 1, 2018 Received interest from Spiller Company bonds. Jan. 1, 2018 Sold 36 Spiller Company bonds for $47,250. Journalize the transactions. Prepare the adjusting entry for the accrual of interest on December 31, 2017.

Answer 1

Answer:

Investment on Spiller Bonds   81,000 debit

                          Cash                             81,000 credit

--record of purchase--

interest receivable      12,150 debit

          interest revenue             12,150 credit

--year-end adjusting for accrued interest--

cash                    12,150 debit

       interest receivable      12,150 credit

--collection of the interest--

loss on investment sale       1,350 debit

cash                                    47,250 debit

          Investment on Spiller Bonds           48,600 credit

--sale of Spiller bonds at loss--

Explanation:

accrued interest for the year ended December 31th 2017:

81,000 bonds x 15% = 12,150 accrued interest

At Jan 1st the comapny cashes the interest and sale 36 bonds for 47,250

sale of bonds:

cash procceds:   47,250

outcome per bond:

47,250 / 36 bonds : 1,312.5 dollar per bond

loss on sale: 1,350 - 1,312.5 = 37.5 per bond

$ 37.5 x 36 bond = 1,350 loss