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Sarasota Company purchased, on January 1, 2017, as a held-to-maturity investment, $79,000 of the 9%, 5-year...
Sarasota Company purchased, on January 1, 2017, as a held-to-maturity investment, $79,000 of the 9%, 5-year bonds of Chester Corporation for $73,161, which provides an 11% return. Prepare Sarasota’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used
Solutions
Expert Solution
| Transaction | General Journal | Debit | Credit |
| (a) | Investment in bonds | $ 73,161.00 | |
| Cash | $ 73,161.00 | ||
| (Investment in bonds purchased) | |||
| (b) | Cash | $ 7,110.00 | |
| Investment in bonds | $ 937.71 | ||
| Interest income | $ 8,047.71 | ||
| (To record interest revenue) |
| Amortization table | |||||
| Period | Cash payment | Interest expense | Discount on Bonds payable | Carrying Value of Bond | |
| Issued at the beg of 2017 | $ 5,839.00 | $ 73,161.00 | |||
| 2017 | $ 7,110.00 | $ 8,047.71 | $ 937.71 | $ 74,098.71 | |
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