Question

1. On 5/2/20, Anna Company purchased $100,000 of the 9%, 10-year bonds of Dexter Corporation for $106,247, which provides an 8% return on annual interest payments made every 5/ Anna does not intend to hold the bonds until maturity, but will hold them for longer than a year. The market value of the bonds at 12/31/20 is $106,100 and at 12/31/21 is $106,000. On 3/1/22, Anna sells the bonds for $105,950. What journal entries will Anna make in 2020 and 2021 to appropriately record these transactions and to report this investment on the year-end financial statements and on 3/1/22 to record the sale of the investment?

Answer 1

Journal Entries:

On 05/2/20 (For purchase):

9% bonds A/c Dr 106247

To Cash A/c    106247

On 12/31/20 (Adjustment to Market Value):

Profit & Loss A/c Dr 147

To 9% bonds A/c 147

On 05/1/21 (For Receipt of Interest):

Cash A/c Dr 9000

To Interest on 9% bonds A/c 9000

On 12/31/21 (Adjustment to Market Value):

Profit & Loss A/c Dr 100

To 9% bonds A/c 100

On 03/1/22 (On Sale of bonds):

Cash A/c Dr 105950

Profit & Loss A/c Dr 50

To 9% bonds A/c 106000

Note: The date of Payment of Interest is not provided, hence assumed as every year in May month & Interest is paid annually with 9% Interest as specified in question