Question

A.Red Company has excess cash to invest and pays Ş 50.000 to buy Ş 50.0000 face value, % 5 five-year B Company’s bonds July 1, 2019. Red Company plans to hold the bonds until maturity.
B. On December 31, 2019 Red Company receives the first interest payment on the bond investment.

C. When Red Company disposes of the bonds at maturity on June 30, 2024, it will receive the face value of the bonds. Assuming that the last interest payment has been recorded, the entry is:


WHAT IS JOURNAL ENTRY?​

Answer 1

Answer:

Dr Bond investment   $50,000

Cr  cash                                          $50,000

Dr cash                               $1,250

Cr interest revenue                            $1,250

Dr cash                          $50,000

cr bond investment                       $50,000

Explanation:

On July 1 2019,Red company would have parted with cash of $50,000 which means that cash account should be credited with $50,000 while bond investment account is debited with same amount

On receipt of first interest payment of $1,250 (5%*$50,000*1/2) cash is debited with $1,250 while interest revenue is credited with the same amount.

Upon receipt of face value at redemption,the journal entry would be opposite of the initial one