In: Accounting
Problem 17-7 The following information relates to the debt securities investments of Carla Company.
1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of $322,800 at 100 plus accrued interest. Interest is payable April 1 and October 1.
2. On April 1, semiannual interest is received.
3. On July 1, 9% bonds of Sampson, Inc. were purchased. These bonds with a par value of $201,600 were purchased at 100 plus accrued interest. Interest dates are June 1 and December 1.
4. On September 1, bonds with a par value of $63,600, purchased on February 1, are sold at 99 plus accrued interest.
5. On October 1, semiannual interest is received.
6. On December 1, semiannual interest is received.
7. On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93, respectively.
(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are available-for-sale securities. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date | Accounts title and Explanation | Debit | Credit |
1-Feb | 10% bonds Gibbon co( available for sale) | 322,800 | |
Interest Revenue (322800*10%*4/12) | 10,760 | ||
Cash | 333,560 | ||
( To record the purchase of bond from gibbon and recognition of interest for four months | |||
1-Apr | Cash | 16,140 | |
Interest Revenue (322800*10%*6/12) | 16,140 | ||
( To record the receipt of semi annual interest on bond purchased on 01-feb | |||
1-Jul | 9% bonds of sampson( available for sale) | 201,600 | |
Interest Revenue (201600*9%*1/12) | 1,512 | ||
Cash | 203,112 | ||
( To record the purchase of bond from sampson and recognition of interest for one month) | |||
1-Sep | Cash | 65,614 | |
10% bonds Gibbon co( available for sale) | 62,964 | ||
Interest Revenue (63600*10%*5/12) | 2,650 | ||
( To record the sale of securities along with interest) | |||
1-Oct | Cash | 12,960 | |
Interest revenue (322800-63600)*6/12*10% | 12,960 | ||
( To record the receipt of semi annual interest on bond purchased on 01-feb | |||
1-Dec | Cash | 9,072 | |
Interest Revenue (201600*9%*6/12) | 9,072 | ||
( To record the receipt of semi annual interest on bond purchased on 01-jul) | |||
31-Dec | Interest Receivable (259200*10%*3/12)+(201600*9%*1/12) | 7,992 | |
Interest Revenue | 7,992 | ||
( To record accrued interest | |||
31-Dec | Unrealized Holding Gain or Loss—Equity | 27,072 | |
Securities Fair Value Adjustment | 27,072 | ||
( To record the fair value adjustment) | |||
gibbon co | |||
Cost (322800-63600) | 259200 | ||
Market value | 246240 | ||
unrealized gain/( loss) | -12960 | ||
Sampson inc | |||
Cost | 201600 | ||
Market value | 187488 | ||
unrealized gain/(loss) | -14112 | ||
Unralized gain or loss | -27072 |