Question

Owsion On February 1 2016 $380,000. Interest is 14. 2016. XYC Company purchase $400,000 of Getty 5% 10 year bonds for 00. Interest is to be paid each Feb 1" for the next ten years. the journal Entry required on each of the following dates ON THE BOOKS OF XYC COMPANY: Feb 1, 2016 Dec 31". 2016 Feb 1". 2017 Prepare the journal Entry required on each of the following dates ON THE BOOKS OF GETTY COMPANY: Feb 1". 2016

Answer 1

	Journal Entries on the books of XYZ Company
Date	Particulars	Dr	Cr
Feb 1st 2016
	Investment A/ (5% 10 Year Bonds)	3,80,000
	Bank A/c		3,80,000
	(Being 5% 10 Year Bonds purchased)
Dec 31st 2016
	Interest Receivable A/c (Balance Sheet)	18,333
	Interest Income A/c (Profit and Loss)		18,333
	(Being Interest Receivable for 11 months (400,000*5%*11/12)
Dec 31st 2016
	Investment A/ (5% 10 Year Bonds)	1,833
	Interest Income A/c (Profit and Loss)		1,833
	(Being Interest income recognised on purchase of $ 400,000 at $ 380,000 (20,000*11months/12months/10 Years)
Feb 1st 2017	Bank A/c	20,000
	Interest Receivable A/c (Balance Sheet)		18,333
	Interest Income A/c (Profit and Loss)		1,667
	(Being Interest Received (400,000*5%)
	Journal Entries on the books of Getty Company
Date	Particulars	Dr	Cr
Feb 1st 2016
	Bank A/c	3,80,000
	Discount on Bonds Payable	20,000
	5% 10 Year Bonds - Borrowings		4,00,000
	(Being 5% 10 Year Bonds issued at a Discount of 20,000
Dec 31st 2016
	Interest Expense A/c (Profit and Loss)	18,333
	Interest Payable A/c (Balance Sheet)		18,333
	(Being Interest Payable for 11 months (400,000*5%*11/12)
Dec 31st 2016
	Interest Expense A/c (Profit and Loss)	1,833
	Discount on Bonds Payable		1,833
	(Being Interest Liability on issue of Bonds of $ 400,000 at $ 380,000 (20,000*11months/12months/10 Years) (Discount on Bonds Amortised)
Feb 1st 2017	Interest Payable A/c (Balance Sheet)	18,333
	Interest Expense A/c (Profit and Loss)	1,667
	Bank A/c		20,000
	(Being Interest Payable (400,000*5%)