Question

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

   Year 1
   Jan. 31	Purchased 36, $1,000 government bonds at 100 plus accrued interest of $180 (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 15, $1,000 bonds at 98 plus $150 accrued interest (two months).

   a. Journalize the entries for these transactions.

   Assume a 360-day year. Do not round interim calculations. Round final answers to nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

   Year 1, Jan. 31	Cash Interest Expense Interest Revenue Investments-Government Bonds Notes Receivable
   	Cash Interest Receivable Interest Revenue Loss on Sale of Investments Notes Receivable
   	Cash Interest Receivable Interest Revenue Investments-Government Bonds Notes Receivable
   Year 1, July 1	Cash Interest Receivable Interest Revenue Investments-Government Bonds Notes Receivable
   	Cash Interest Payable Interest Receivable Investments-Government Bonds Notes Receivable
   	Cash Gain on Sale of Investments Interest Revenue Investments-Government Bonds Notes Receivable
   Year 1, Aug. 30	Cash Gain on Sale of Investments Interest Receivable Interest Revenue Investments-Government Bonds
   	Gain on Sale of Investments Interest Receivable Interest Revenue Investments-Government Bonds Loss on Sale of Investments
   	Cash Gain on Sale of Investments Interest Payable Interest Receivable Interest Revenue
   	Cash Gain on Sale of Investments Interest Receivable Investments-Government Bonds Loss on Sale of Investments

   Feedback

   b. Provide the December 31, Year 1, adjusting journal entry for semiannual interest earned on the bonds.

   Assume a 360-day year. Do not round interim calculations. Round final answers to nearest dollar.

   Year 1, Dec. 31	Cash Interest Receivable Interest Revenue Investments-Government Bonds Notes Receivable
   	Cash Interest Receivable Interest Revenue Investments-Government Bonds Notes Receivable

Answer 1

a
Year 1, Jan. 31	Investments-Government Bonds	36000
	Interest Receivable	180
	Cash		36180
Year 1, July 1	Cash	1080		=36000*6%*6/12
	Interest Receivable		180
	Interest Revenue		900	=36000*6%*5/12
Year 1, Aug. 30	Cash	14850		=(15000*0.98)+150
	Loss on Sale of Investments	300
	Interest Revenue		150	=15000*6%*2/12
	Investments-Government Bonds		15000	=15*1000
b
Year 1, Dec. 31	Interest Receivable	630		=(36-15)*1000*6%*6/12
	Interest Revenue		630