Question

The following bond investment transactions were completed during a recent year by Starks Company:

Year 1
Jan.	31	Purchased 84, $1,000 government bonds at 100 plus accrued interest of $420 (one month). The bonds pay 6% annual interest on July 1 and January 1.
July	1	Received semiannual interest on bond investment.
Aug.	30	Sold 27, $1,000 bonds at 97 plus $270 accrued interest (two months).

Required:

a.	Journalize the entries for these transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.
b.	Provide the December 31, Year 1, adjusting journal entry for semiannual interest earned on the bonds.

Answer 1

Answer of Part a Accounts Titles & Explanation Debit Credit Date Investments-Government Bonds (84* $1000) Jan 31 84,000 Interest Receivable ($84,000 *6% * 30/360) 420 Cash 84,420 Cash ($84,000 6%* 1/2) Interest Receivable July 1 2,520 420 Interest Revenue 2,100 Cash Aug 30 26,460 Loss on Sale of Investment 810 Interest Revenue 270 Investments- Government Bonds (27 * $1,000) 27,000 *Total Proceeds from Sale Bonds Sale Accrued Interest Total Proceeds from Sale= $27,0000 *97% +$270 Total Proceeds from Sale $26,190+$270 Total Proceeds from Sale $26,460 Answer of Part b Accounts Titles & Explanation Interest Receivable Debit Credit Date Dec31 1,710 Interest Revenue 1,710 Interest ($84- $27)* $1,000 *6%* Interest -$57,000 * 6%*1 /2 1/2 Interest -$1,710