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 2 years agoRelated Solutions
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