Question

On May 1, 20Y6, Stanton Company purchased $100,000 of Harris Company's 12% bonds at 100 plus accrued interest of $4,000. On June 30, 20Y6, Stanton received its first semiannual interest. On February 1, 20Y7, Stanton sold $80,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on February 1, 20Y7, will include a:________. a. credit to Interest Revenue for $2,400. b. credit to Gain on Sale of Investments for $2,400. c. debit to Cash for $82,400 d. credit to Interest Receivable for $1,000.

Answer 1

Answer:

b. credit to Gain on Sale of Investments for $2,400.

Explanation:

May 1, 20Y6

Purchase price of Bond = $100

Number of Bond Purchased = $100,000 / 100 = 1,000 per bond

February 1, 20Y7

Sale Price of Bond = $103 per Bond

Gain on Sale = $103 - $100 = $3 per bond

Number of Bond Sold = $80,000 / 100 = 800 bonds

Gain on sold bonds = 800 bonds x $3 per bond = $2,400

Journal Entry Will be as follows:

                                    Dr.       Cr.

Cash (800 x 103)   $82,400

Gain on sale                         $2,400

Investment in Bond             $80,000