Question

On February 1, 2021, Cromley Motor Products issued 7% bonds, dated February 1, with a face amount of $60 million. The bonds mature on January 31, 2025 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $60,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. Prepare the journal entries by Cromley to record all subsequent events related to the bonds through January 31, 2023. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

No	Date	General Journal	Debit	Credit
1	July 31, 2021	Interest expense
		Discount on bonds payable
		Cash
2	December 31, 2021	Interest expense
		Discount on bonds payable
		Interest payable
3	January 31, 2022	Interest expense
		Interest payable
		Discount on bonds payable
		Cash
4	July 31, 2022	Interest expense
		Discount on bonds payable
		Cash
5	December 31, 2022	Interest expense
		Discount on bonds payable
		Interest payable
6	January 31, 2023	Interest expense
		Interest payable
		Discount on bonds payable
		Cash

2. Prepare the journal entries by Barnwell to record all subsequent events related to the bonds through January 31, 2023. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

No	Date	General Journal	Debit	Credit
1	July 31, 2021	Cash
		Discount on investment in bonds
		Interest revenue
2	December 31, 2021	Interest receivable
		Discount on investment in bonds
		Interest revenue
3	January 31, 2022	Cash
		Discount on investment in bonds
		Interest receivable
		Interest revenue
4	July 31, 2022	Cash
		Discount on investment in bonds
		Interest revenue
5	December 31, 2022	Interest receivable
		Discount on investment in bonds
		Interest revenue
6	January 31, 2023	Cash
		Discount on investment in bonds
		Interest receivable
		Interest revenue

Answer 1

IN THE BOOKS OF CROMLEY MOTOR PRODUCTS
NO	DATE	PARTICULARS	DEBIT	CREDIT
Amount in $ million
1	31-07-2021	Interest Expense A/c		Dr.	2.40
		To Discount on bond payable		($60*4%)	0.30
		To Cash			2.10
						($60*3.5%)
2	31-12-2021	Interest Expense A/c		Dr.	2.40
		To Discount on bond payable			0.30
		To Interest payable			2.10
3	31-01-2022	Interest Expense A/c		Dr.	-
		Interest payable A/c		Dr.	2.10
		To Discount on bond payable			-
		To Cash			2.10
4	31-07-2022	Interest Expense A/c		Dr.	2.40
		To Discount on bond payable			0.30
		To Cash			2.10
5	31-12-2022	Interest Expense A/c		Dr.	2.40
		To Discount on bond payable			0.30
		To Interest payable			2.10
6	31-01-2023	Interest Expense A/c		Dr.	-
		Interest payable A/c		Dr.	2.10
		To Discount on bond payable			-
		To Cash			2.10
	Assumptions
	1.Interest in January due only in the month of July
	2. In the case of Cromley motor products, it is a liability. Decease in expense due to a Discount on the bond is an income. So it should be deducted from there Expense account means interest expense.

IN THE BOOKS OF BARNWELL
NO	DATE	PARTICULARS	DEBIT	CREDIT
Amount in $
1	31-07-2021	Cash A/c		Dr.	2,100.00	($60000*3.5%)
		Discount on bond payable		Dr.	300.00
		Interest Revenue			2,400.00
						($60000*4%)
2	31-12-2021	Interest receivable A/c		Dr.	2,100.00
		Discount on bond payable		Dr.	300.00
		Interest Revenue			2,400.00
3	31-01-2022	Cash A/c		Dr.	2,100.00
		Discount on bond payable		Dr.	-
		Interest receivable A/c			2,100.00
		Interest Revenue			-
4	31-07-2022	Cash A/c		Dr.	2,100.00
		Discount on bond payable			300.00
		Interest Revenue			2,400.00
5	31-12-2022	Interest receivable A/c		Dr.	2,100.00
		Discount on bond payable		Dr.	300.00
		Interest Revenue			2,400.00
6	31-01-2023	Cash A/c		Dr.	2,100.00
		Discount on bond payable		Dr.	-
		Interest receivable A/c			2,100.00
		Interest Revenue			-
	Note
	In the case of Branwell, it is an investment. Decease in revenue due to Discount on the bond is expense. So it should be deductable from there revenue account means interest revenue.