Question

On May 1 of the current year a company paid $200,000 to purchase 7%, 10-year bonds with a par value of $200,000; interest is paid semiannually on May 1 and November 1. The company intends to hold the bonds until they mature.

a. Prepare the journal entries to record the bond purchase.

b. The receipt of the first semiannual interest payment on September 1 of the current year

c. The accrual of interest for year-end December 31

d. The receipt of the second semiannual payment on May 1

Answer 1

Journal entry :
Date	Accounts titles and Explanation	Debit ($)	Credit ($)
May-01	Bonds investment	2,00,000
	Cash		2,00,000
	(To record bond purchase)
Sept-1	Cash	4,667
	Interest revenue (200000*7%*4/12)		4,667
	(To record receipt of interest)
Dec-31	Interest receivable (200000*7%*2/12)	2,333
	Interest revenue		2,333
	(To record accural of interest)
May-01	Cash(200,0000 x 0.07 x 6/12)	7,000
	Interest receivable		2,333
	Interest revenue		4,667
	(To record interest received)