Question

Gonzalez Company acquired $158,400 of Walker Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $47,400 of the bonds for 95.

Journalize entries to record the following in Year 1 (refer to the Chart of Accounts for exact wording of account titles):

a.	The initial acquisition of the bonds on May 1.
b.	The semiannual interest received on November 1.
c.	The sale of the bonds on November 1.
d.	The accrual of $1,110 interest on December 31.

Answer 1

The required journal entries for the given transactions are shown as follows:-

Journal Entries (Amounts in $)

No	Date	Account Titles and Explanations	Debit	Credit
a)	May 1	Investments-Walker Co. Bonds	158,400
		Cash		158,400
		(To record the investment in bonds)
b)	Nov 1	Cash ($158,400*6%*6/12)	4,752
		Interest Revenue (May to Oct)		4,752
		(To record the interest revenue)
c)	Nov 1	Cash ($47,400*95%)	45,030
		Loss on sale of investments (47,400-45,030)	2,370
		Investments-Walker Co. Bonds (face value)		47,400
		(To record the sale of investment in bonds)
d)	Dec 31	Interest Receivable [(158,400-47,400)*6%*2/12]	1,110
		Interest Revenue (For Nov and Dec)		1,110
		(To record the accrued Interest)

Working Notes:-

1) The bonds of face value $47,400 had sold on Nov 1 for 95 and therefore interest revenue is accrued on the face value of $110,000 (i.e. $158,400-$47,400) for the month of November and December.