Question

Q5. Scotch Company purchased as a long-term investment $775,000 of Kenton Corporation 10-year, 11% bonds. Present entries to record the following selected transactions: Mar. 1Purchased bonds at their face amount for $775,000. May 1Sold half the bonds at 98 plus accrued interest of $6,925. The broker deducted $400 for brokerage fees and taxes, remitting the balance.

Answer 1

In the books of Scotch Company

             Journal Entries

Date	Particulars	Debit ($)	Credit ($)
May 1	Long-term Investment in bonds A/C                             DR.	775,000
	To Cash A/C		775,000
	(Being 11% bonds of Kenton Corporation 10-year purchased)
May 1	Broker A/C                                                                         DR.	386,675
	Loss from sale of bonds A/C                                           DR.	7,750
	Long-term Investment in bonds A/C		387,500
	Interest Income A/C		6,925
	(Being Sold half the bonds at 98 plus accrued interest of $6,925.)
May 1	Cash A/C                                                                            DR.	386,275
	Brokerage fees and taxes expenses A/C                      DR.	400
	To Broker A/C		386,675
	(Being broker remitted the balance after deducting $400 for brokerage fees and taxes)

W.N. 1

Calculation of cash to be received on sale of half of the bonds

Face Value of bonds sold= $ 775,000/2 = $ 387,500

Sales Value of bonds = $ 387,500 * 98/100 = $ 379,750

Accrued Interest = $6,925

Total consideration to be received = $ 379,750 + $6,925

                                                              = $ 386,675

Loss from the sale of bonds = $ 387,500 * 2/100 = $ 7,750