Question

2. Required: a) Prepare journal entries for all dates. Journal entries for the Tempe bonds (a, b, c) Journal Entries for the Flagstaff bonds (d, e, f). No explanations or supporting computations are required. Use straight-line amortization. Do NOT use separate accounts for discounts and premiums; instead, net them into the Investments account. When computing amortization, round the monthly amortization amounts to the nearest cent. However, journal entry amounts can be rounded to the nearest dollar.

The following information relates to the HTM debt securities investments of Kiran Company during 2018:

a. February 1: The company purchased 10% bonds of Tempe Company having a par value of $150,000 at 98 plus accrued interest. Interest is payable January 1 and July 1. Maturity date is 1/1/20.

b. July 1: Semiannual interest is received and amortization is updated for the Tempe bonds.

c. December 31: Interest is accrued and amortization updated for the Tempe bonds.

d. June 1: 9% bonds of Flagstaff were purchased. The bonds had a par value of $80,000 and were purchased at 103 plus accrued interest. Interest dates are January 1 and July 1. Maturity date is 1/1/20.

e. July 1: Semiannual interest is received and amortization updated for the Flagstaff bonds.

f. December 31: Interest is accrued and amortization updated for the Flagstaff bonds.

Answer 1

Solution: Part 1

JOURNAL Entries for HTM debt Securities Investments of Kiran Company for the Year 2018 (Tempe Company Bond)
Date	Account Name	Debit (In $)	Credit (In $)
February 01	Cash Account Dr.	1,48,250.00
	Discount on Bond Payable Dr.	3,000.00
	To Bond Payable Account Cr.		1,50,000.00
	To Interest Payable Account Cr.		1,250.00
	(Note that the total amount received is debited to the Cash account and the bond's face amount is credited to Bonds Payable. The $1,250 {$1,50,000*10%*1/12) for 1 month interest received by the corporation for the accrued interest is credited to Interest Payable. The value is @ 98 the discount on bond is recorded.
March 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue. Total Discount is $3000 to be cleared in 2 years i.e. 3000/24 = 125)
April 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
May 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
June 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
July 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
July 01	Interest Payable Account Dr.	7,500.00
	To Cash Account Cr.		7,500.00
	(Note Being interest expenses paid for the semi annual period)
August 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
September 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
October 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
November 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
December 01	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
December 31	Interest Expenses Account Dr.	1,375.00
	To Discount on Bond Payable Cr.		125.00
	To Interest Payable Account Cr.		1,250.00
	(Note: Being interest booked on monthly basis with adjustment to discount on issue)
December 31	Interest Expenses Account Dr.	7,500.00
	To Cash Account Cr.		7,500.00
	(Being interest booked for the second half of the year)

JOURNAL Entries for HTM debt Securities Investments of Kiran Company for the Year 2018 (Flagstaff Company Bond)
Date	Account Name	Debit (In $)	Credit (In $)
February 01	Cash Account Dr.	1,48,250.00
	To Bond Payable Account Cr.		80,000.00
	To Premium on Bond Payable Account Cr.		2,400.00
	To Interest Payable Account Cr.		600.00
	(Note that the total amount received is debited to the Cash account and the bond's face amount is credited to Bonds Payable. The $600 {$80,000*9%*1/12) for 1 month interest received by the corporation for the accrued interest is credited to Interest Payable. The value is @ 103 the premium on bond is recorded.
March 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
	(Note: Being interest booked on monthly basis with adjustment to premium on issue. The Premium of $2400 to be adjusted in period of 2 years i.e. 2400/24 = 100. )
April 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
May 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
June 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
July 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
July 01	Interest Payable Account Dr.	3,600.00
	To Cash Account Cr.		3,600.00
	(Note Being interest expenses paid for the semi annual period)
August 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
September 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
October 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
November 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
December 01	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
December 31	Interest Expenses Account Dr.	500.00
	Premium on Bond Payable Account Dr.	100.00
	To Interest Payable Account Cr.		600.00
December 31	Interest Expenses Account Dr.	3,600.00
	To Cash Account Cr.		3,600.00
	(Being interest booked for the second half of the year)