Question

1.

Bond Investment Transactions

Journalize the entries to record the following selected bond investment transactions for Starks Products:

For a compound transaction, if an amount box does not require an entry, leave it blank.

a. Purchased for cash $90,000 of Iceline, Inc. 8% bonds at 100 plus accrued interest of $1,200, paying interest semiannually.

	Investments-Iceline, Inc. Bonds
	Interest Receivable
	Cash

b. Received first semiannual interest payment.

	Cash
	Interest Receivable
	Interest Revenue

c. Sold $60,000 of the bonds at 103 plus accrued interest of $680.

	Cash
	Interest Revenue
	Gain on Sale of Investments
	Investments-Iceline, Inc. Bonds

2.

Stock Investment Transactions

On September 12, 2,700 shares of Aspen Company are acquired at a price of $32.00 per share plus a $135 brokerage commission. On October 15, a $0.80-per-share dividend was received on the Aspen Company stock. On November 10, 1,080.00 shares of the Aspen Company stock were sold for $27 per share less a $54 brokerage commission.

When required, round final answers to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.

Sept. 12
Oct. 15
Nov. 10

Answer 1

Solution: (All amount in $)

Part 1.

S. No.	Accounts Title & Explanations	Debit	Credit
a.	Investments-Iceline, Inc. Bonds	90,000
	Interest Receivable	1,200
	Cash		91,200
	(To record Investment in Bonds)
b.	Cash	3,600
	Interest Receivable		1,200
	Interest Revenue		2,400
	(To record received of first semiannual interest)
c.	Cash	62,480
	Investments-Iceline, Inc. Bonds		60,000
	Interest Accrued		680
	Gain on Sale of Investments		1,800
	(To record Sale of Bonds)
	Working:
	First Interest:	= 90,000*8%*(6/12)
	($90,000 @ 8% for 6 Months)	=3600
	Sale Value	=61,800
	(60,000 * 103/100)

Part 2.

Date	Accounts Title & Explanations	Debit	Credit
Sept. 12	Shares of Aspen Company	86,535
	Cash		86,535
	(To record Investment at Cost)
Oct. 15	Cash	2,160
	Dividend Income		2,160
	(To record Dividend Income)
Nov. 10	Cash	29,106
	Loss on Investment (Shares of aspen) Sold	5,508
	Shares of Aspen Company		34,614
	(To record partial sale of Investment)

Working Notes:
Cost of Purchase
Share cost (2,700 @ $32 each)	86,400
Brokerage Commission	135
Cost	86,535
Dividend Income	2,160
(2,700 shares @ $0.80 each)
Share sale - Profit / (Loss)
Sale Price	29,160
(1,080 Shares @ $27 Each)
Less: Brokerage Charges	(54)
Net sale Price	29,106
Cost of share sold	34,614
[ (86535 * (1080/2700) ]
Profit / (Loss) on Sale	(5,508)