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Metro Company purchased $100,000, 10%, 5-year bonds on January 1, 20x1, with interest payable on July...

Metro Company purchased $100,000, 10%, 5-year bonds on January 1, 20x1, with interest payable on July 1 and January 1. The bonds sold for $108,111, which results in an effective interest rate of 8%. The market value on December 31, 20x1 was $105,000 and all bonds were sold for $107,500 on January 1, 20x2.

Required: prepare journal entries on January 1, 20x1, July 1, 20x1, December 31, 20x1 and January 1, 20x2 assuming the bond investment is classified as?

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Answer #1
Journal entries
date particulars Debit credit
1/1/20x1 Trading bonds $ 1,08,111.00
cash $ 1,08,111.00
7/1/20x1 cash $       5,000.00
interest revenue $       5,000.00
12/31/x1 Interest receivable $       5,000.00
interest revenue $       5,000.00
1/1/x2 cash $ 1,12,500.00
loss on sale of bonds $           611.00
trading bonds $ 1,08,111.00
interest receivable $       5,000.00
assuming the bond investment is classified as trading security
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