Question

Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of $675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds. The initial investment in the bonds was $700,000 and the discount on bond account has a $100,000 balance. Northern properly classifies these bonds as trading securities. The journal entry to record the sale of the bonds includes:______.

Answer 1

Answer and Explanation:

The journal entry for the sale of the bond is shown below:

Cash Dr $680,000

Discount on bond investment $100,000

     To Investment in bonds $700,000

    To Fair value adjustment $80,000

(Being the sale of the bond is recorded)

For recording we debited the cash and discount as it increased the assets and credited the bond investment and fair value adjustment so that proper posting could be done