Question

On September 1, 2019, the entity bought the bonds belonging to the private sector with a nominal value (par value) of $400,000 with an annual interest payment of 12% through the bank. The related bonds were sold on February 1, 2020 with a bank equivalent of $424,000 .

a- Please show the journal entries required on 31 December 2019.

b- Show the journal entries required on February 1, 2020.

c- If these bonds were sold on February 1, 2020 for $418.000 show the journal entries.

Answer 1

Requirement a:

31 December 2019           Interest Receivable a/c ($400,000*12%*4/12)     Dr           $16,000

                                                                To Interest Revenue a/c                                               $16,000

Requirement b:

1 February 2020                Interest Receivable a/c ($400,000*12%*1/12)     Dr           $4,000

                                                                To Interest Revenue a/c $4,000

1 February 2020                Cash a/c                                                                               Dr           $424,000

                                                                To Bond Receivable a/c                                                                 $400,000

                                                                To Interest Receivable a/c                                                           $20,000

                                                                To Gain on sale of Bonds                                                              $4,000

Requirement c:

1 February 2020                Cash a/c                                                                               Dr           $418,000

                                                Loss on sale of Bonds                                                     Dr           $2,000

                                                                To Bonds Receivable a/c                                                               $400,000

                                                                To Interest Receivable a/c                                                           $20,000