Journal Entries Exercises
Journal Entries Exercises
Brief Exercise 17-3
Carow Corporation purchased, as a held-to-maturity investment, $70,500 of the 10%, 7-year bonds of Harrison, Inc. for $77,947, which provides a 8% return. The bonds pay interest semiannually.
Prepare Carow’s journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used.
| No. | Account Title and Explanation | Debit | Credit |
| a | Debt Investment (Held-to-Maturity)
Cash |
$77,947 |
$77,947 |
| No. | Account Title and Explanation | Debit | Credit |
| b | Cash ($70,500 × 0.1 × 6/12)
Debt Investment (Held-to-Maturity) Interest revenue ($77,947 × 0.08 × 6/12) |
$3,525 |
$407 $3,118 |
Brief Exercise 17-4
Hendricks Corporation purchased trading investment bonds for $58,780 at par. At December 31, Hendricks received annual interest of $2,120, and the fair value of the bonds was $56,010.
Prepare Hendricks’ journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)
| No. | Account Title and Explanation | Debit | Credit |
| a | Debt Investment
Cash |
$58,780 |
$58,780 |
| No. | Account Title and Explanation | Debit | Credit |
| b | Cash
Interest Revenue |
$2,120 |
$2,120 |
| No. | Account Title and Explanation | Debit | Credit |
| c | Unrealized Holding Gains or Loss-Income
Fair Value Adjustment (Trading) ($58,780 – $56,010) |
$2,770 |
$2,770 |
Exercise 17-2
On January 1, 2013, Dagwood Company purchased at par 11% bonds having a maturity value of $319,900. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.
| (a) | Prepare the journal entry at the date of the bond purchase. | |
| (b) | Prepare the journal entry to record the interest received for 2013. | |
| (c) | Prepare the journal entry to record the interest received for 2014. | |
| No. | Account Title and Explanation | Debit | Credit |
| (a) Jan. 1, 2013 | Investment in Bonds
Cash |
$319,900 |
$319,900 |
| No. | Account Title and Explanation | Debit | Credit |
| (b) Dec. 31, 2013 | Cash
Interest Income ($319,900 × 0.11) |
$35,189 |
$35,189 |
| No. | Account Title and Explanation | Debit | Credit |
| (c) Dec. 31, 2014 | Cash
Interest Income |
$35,189 |
$35,189 |
Do you need an Original High Quality Academic Custom Essay?
