Question

In: Accounting

On January 1, Year 1 Alcorn Corporation purchased $95,000 of 9% bonds at face value. The...

On January 1, Year 1 Alcorn Corporation purchased $95,000 of 9% bonds at face value. The bonds are classified as a held-to-maturity investment. The bonds pay interest semiannually on January 1 and July 1. On December 31, Year 1, the fair value of the bonds is $98,000. Alcorn's fiscal year ends on December 31.

Required:

1. Prepare the journal entries to record the acquisition of the bonds and the first two interest payments. Include any year-end adjusting entries.

2. If the bonds were classified as an available for sale security, what additional adjusting entry would be made on December 31?

Solutions

Expert Solution

1)

investments held for maturity

in this case no need to adjust the investments to fair value

Date Accounts Name Debit Credit
1-Jan marketable securities or ( investment in bonds ) 95000
                cash 95000
1-Jul cash ( 95000 * 9% * (6/12) 4275
interest revenue 4275
31-Dec     interest accrued ` 4275
                           interest revenue 4275
1-Jan cash 4275
interest accrued 4275

problem - 2

investments are needs to adjust to fair value if they are classified as available foe sale

Adjusting entry

Date Accounts Name Debit Credit
31- dec`` marketable securities ( 98000 - 95000) 3000
unrealized gain on marketable securities 3000

ekkarill92 answered 1 year ago
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