Question

On July 1, 2019, the company purchased five $1,000 bonds issued by the City of Miamisburg School District. These bonds were purchased for $4573. The contract rate on these bonds is 4% with interest payable on 1/1 and 7/1; these bonds mature 7/1/2024. The bonds were sold to yield 6%. It is the intention of management to hold these bonds until they mature. On December 31, 2019, these bonds had a fair value of 94.

Prepare all journal entries for 2019.

Answer 1

Solution:

Journal Entries
Event	Date	Particulars	Debit	Credit
a	1-Jul-19	Investment in Bond Dr	$5,000.00
		To Cash		$4,573.00
		To Discount on bond investment		$427.00
		(Being investment in bond recorded)
b	31-Dec-19	Interest receivables Dr ($5,000*4%*6/12)	$100.00
		Discount on bond investment Dr	$37.19
		To Interest revenue ($4,573*6%*6/12)		$137.19
		(Being revenue recognition for bond interest and discount amortized)