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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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