Question

Journalize debt investment transactions, accrue interest, and record sale.

Frunt Company purchased 130 Pine Company 7%, 10-year, $1,000 bonds on January 1, 2017, for $136,000. The bonds pay interest annually on January 1. On January 1, 2018, after receipt of interest, Frunt Company sold 95 of the bonds for $92,000.

Prepare the journal entries to record the transactions described above.

I don't understand the question..what method?

Answer 1

	Journal entries to record the transactions
Date	Description	Debit	Credit
1-Jan-17	Investment in debt securities	$136,000
	Cash		$136,000
	(To record investment in debt securities)
31-Dec-17	Interest receivable	$9,100
	Investment in debt securities		$600
	Interest revenue		$8,500
	(To record accrued interest on debt securities and amortization of premium paid on straight line basis)
1-Jan-18	Cash	$9,100
	Interest receivable		$9,100
	(To record cash received for interest income)
1-Jan-18	Cash	$92,000
	Loss on sale on debt investment	$6,946
	Investment in Debt securities		$98,946
	(To record sale of 95 bonds)
	We are here using straight line method of amortization.
	Annual amortization = 6000/10 years = 600 per year
	After receipt of interest on Jan 1, premium on bonds is amortized for 2017 and
	carrying value of bonds is $135400 (136000-600)
	Value of each bond (135400/130)	$1,041.54
	Value of 95 bonds	$98,946.15
	Sale value of 95 bonds	$92,000.00
	Loss on sale of bonds	$6,946.15