Question

Entries for Investment in Bonds, Interest, and Sale of Bonds Bocelli Co. purchased $72,000 of 7%, 12-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 101 plus $175 accrued interest less a $335 brokerage commission. 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. Assume a 360-day year. a. Provide the journal entry for the purchase of the bonds on May 11 plus 72 days of accrued interest. Year 1 May 11 Investments-Sanz County Bonds Interest Receivable Cash Feedback a. Record the investment at face (debit), interest receivable (debit) for [face amount of bonds x interest rate x (72 days ÷ 360 days)], and the cash paid for the sum of cash plus interest receivable. b. Provide the journal entry for the semiannual interest on October 1. Year 1 Oct. 1 Cash Interest Receivable Interest Revenue Feedback b. Bond principal x interest rate x half a year = total interest. Record this amount as a debit to Cash. Reduce interest receivable (credit) by the amount calculated in requirement (a) and increase interest revenue (credit) for the difference between the cash and the interest receivable adjustment. c. Provide the journal entry for the sale of the bonds on October 31. Year 1 Oct. 31 Cash Loss on Sale of Investments Interest Revenue Investments-Sanz County Bonds Feedback c. Calculate the proceeds: 101% x face amount of bonds sold, plus accrued interest, less commission. Debit cash for this amount. Credit investments for the face amount of bonds sold and credit interest revenue for accrued interest amount. To complete the entry, enter the difference between the cash sale amount and the face investment amount + accrued interest as a gain or loss. d. Provide the adjusting entry for accrued interest of $490 on December 31, Year 1. Year 1 Dec. 31 Interest Receivable Interest Revenue

Answer 1