Question

Glaser Company had the following transactions pertaining to debt securities held as a short-term investment. Jan....

Glaser Company had the following transactions pertaining to debt securities held as a short-term investment.

Jan. 1 Purchased 60, 8%, $1,000 Dexter Company bonds for $60,000 cash plus brokerage fees of $800. Interest is payable semiannually on July 1 and

January 1. July 1 Received semiannual interest on Dexter Company bonds.

Oct. 1 Sold 30 Dexter Company bonds for $32,000 plus accrued interest less $500 brokerage fees.

Instructions

(a) Journalize the transactions.

(b) Prepare the adjusting entry for the accrual of interest on December 31.

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Answer #1

a) Journal entry

Date account and explanation Debit Credit
Jan 1 Investment in Bonds (60000+800) 60800
Cash 60800
(To record investment)
July 1 Cash (60000*8%*6/12) 2400
Interest revenue 2400
(To record interest)
Oct 1 Cash (32000+600-500) 32100
Investment in bonds (608000/60*30) 30400
Interest revenue (30000*8%*3/12) 600
gain on sale of investment 1100
(To record sale of investment)

b) Adjusting entry

date account and explanation Debit Credit
Dec 31 Interest receivable (30000*8%*3/12) 600
Interest revenue 600
(To record interest)
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