<u>Solution:</u>
<u>1. Entry for May 1, 2018:
</u>
Date Account Titles and Explanation Debit Credit
1-May-18 Available-for-Sale Securities $1,406,500
Interest Revenue $60,000
Cash $1,466,500
(To record purchase of 12% bonds)
Available-for-Sale Securities $1,375
Interest Revenue $1,375
(To record inerest expense)
Cash $15,000
Interest Revenue $15,000
(To record interest expense on date of sale - August 1, 2018) )
Cash $1,412,500
Available for sale- securities $1,406,500
Gain on sale of securities $6,000
<u>Calculations are as follows:</u>
Amortization = $1,500,000 - $1,406,500 = $93,500
The bond period is for 5 years 8 months = 68 months
Hence monthly interest revenue = $93.500 divide by 68 = $$1,375
Interest revenue = 1,500,000 multiply 12% multiply 1/12 = &18.000
