Question

Bocelli Co. purchased $120,000 of 6%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $30,000 of the Sanz County bonds at 99 plus $150 accrued interest less a $100 brokerage commission. Provide journal entries for the following:
a. The purchase of the bonds on May 11 plus 40 days of accrued interest; assume a 360-day year.
b. Semiannual interest on October 1.
c. Sale of the bonds on October 31.
d. Adjusting entry for accrued interest of $1,365 on December 31, Year 1.

Answer 1

Answer:

S/n    General journal                                  Debit              Credit

a        Investment in Sanz County bonds   $120,000

         Interest                                                $800

         (120,000*6%*40/360)

                 Cash                                                                  $120,800

         (The purchase of the bonds on May 11 plus 40 days of accrued

           interest; assume a 360-day year.)

b.       Cash                                                      $3,600

               Interest receivable                                              $800

               Interest revenue                                                  $2,800

          (Semiannual interest on October 1)

c.        Cash(150* (99%*30,000) - $100)        $29,750

          Loss on sale of investments               $400

               Investment in Sanz County bonds                     $30,000

               Interest revenue                                                  $150

          (Sale of the bonds on October 31)

d.      Interest receivables                               $1,365

               Interest revenue                                                  $1,365

         (Adjusting entry for accrued interest of $1,365 on

          December 31, Year 1.)