Question

On July 1, 2019, the company purchased five $1,000 bonds issued by the City of Miamisburg...

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.

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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)
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