Question

Entries for bond (held-to-maturity) investments

Gillooly Co. purchased $360,000 of 6%, 20-year Lumpkin County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Gillooly Co. sold $90,000 of the Lumpkin County bonds at 98 plus $450 accrued interest less a $200 brokerage commission.

Journalize the entries to record the following: Do not round interim calculations. Round final answers to nearest dollar. If an amount box does not require an entry, leave it blank. Assume a 360-day year.

a. The purchase of the bonds on May 11 plus 40 days of accrued interest.

Year 1 May 11	Investments-Lumpkin County Bonds	fill in the blank 1d8d66fee066ffe_2	fill in the blank 1d8d66fee066ffe_3
	Interest Receivable	fill in the blank 1d8d66fee066ffe_5	fill in the blank 1d8d66fee066ffe_6
	Cash	fill in the blank 1d8d66fee066ffe_8	fill in the blank 1d8d66fee066ffe_9

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a. Record the investment at face (debit), interest receivable (debit) for [face amount of bonds x interest rate x (40 days ÷ 360 days)], and the cash paid for the sum of cash plus interest receivable.

b. Semiannual interest on October 1.

Year 1 Oct. 1	Cash	fill in the blank 8e7bfa05107603c_2	fill in the blank 8e7bfa05107603c_3
	Interest Receivable	fill in the blank 8e7bfa05107603c_5	fill in the blank 8e7bfa05107603c_6
	Interest Revenue	fill in the blank 8e7bfa05107603c_8	fill in the blank 8e7bfa05107603c_9

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b. Bond principal x interest rate x half a year = total interest. Record this amount as a debit to Cash. Reduce interest receivable (credit) by the amount calculated in requirement (a) and increase interest revenue (credit) for the difference between the cash and the interest receivable adjustment.

c. Sale of the bonds on October 31.

Year 1 Oct. 31	Cash	fill in the blank 4f01ca02eff7fcf_2	fill in the blank 4f01ca02eff7fcf_3
	Loss on Sale of Investments	fill in the blank 4f01ca02eff7fcf_5	fill in the blank 4f01ca02eff7fcf_6
	Interest Revenue	fill in the blank 4f01ca02eff7fcf_8	fill in the blank 4f01ca02eff7fcf_9
	Investments-Lumpkin County Bonds	fill in the blank 4f01ca02eff7fcf_11	fill in the blank 4f01ca02eff7fcf_12

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c. Calculate the proceeds: 98% x face amount of bonds sold, plus accrued interest, less commission. Debit cash for this amount. Credit investments for the face amount of bonds sold and credit interest revenue for accrued interest amount. To complete the entry, enter the difference between the cash sale amount and the face investment amount + accrued interest as a gain or loss.

d. Adjusting entry for accrued interest on December 31, Year 1.

Year 1 Dec. 31	Interest Receivable	fill in the blank 44505dfe103cfbf_2	fill in the blank 44505dfe103cfbf_3
	Interest Revenue	fill in the blank 44505dfe103cfbf_5	fill in the blank 44505dfe103cfbf_6

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d. Debit Interest Receivable and credit Interest Revenue for the accrued interest. Remaining bond face after sale x interest rate x (91 days from Oct. 1 to Dec. 31 ÷ 360 days)].

e. The receipt of the face value of the remaining bonds at their maturity on April 1, Year 20.

Year 20 Apr. 1	Cash	fill in the blank a60031ff2028017_2	fill in the blank a60031ff2028017_3
	Investments-Lumpkin County Bonds	fill in the blank a60031ff2028017_5	fill in the blank a60031ff2028017_6

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Partially correct

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Partially correct

Answer 1

a
Year 1 May 11	Investments-Lumpkin County Bonds	360000
	Interest Receivable	2400		=360000*6%*40/360
	Cash		362400
b
Year 1 Oct. 1	Cash	10800		=360000*6%/2
	Interest Receivable		2400
	Interest Revenue		8400
c
Year 1 Oct. 31	Cash	88450		=(90000*0.98)+450-200
	Loss on Sale of Investments	2000
	Interest Revenue		450
	Investments-Lumpkin County Bonds		90000
d
Year 1 Dec. 31	Interest Receivable	4095		=(360000-90000)*6%*91/360
	Interest Revenue		4095
e
Year 20 Apr. 1	Cash	270000		=(360000-90000)
	Investments-Lumpkin County Bonds		270000