Question

(#7) Held-to-Maturity Bond Investment

On January 1, 2018, Gatrong Corporation purchased 13%, 5-year Fleming Corporation bonds with a face value of $100,000. It expects to hold these bonds until maturity. The bonds pay interest semiannually on June 30 and December 31. Gatrong paid $111,583, a price that yields a 10% effective annual interest rate.

Required:

Prepare the journal entry on June 30 for Gatrong to record the first interest receipt, using the effective interest method.

CHART OF ACCOUNTS
Gatrong Corporation
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 125 Notes Receivable 141 Inventory 151 Supplies 152 Prepaid Insurance 191 Investment in Held-to-Maturity Debt Securities LIABILITIES 211 Accounts Payable 221 Notes Payable 224 Interest Payable 231 Salaries Payable EQUITY 311 Common Stock 331 Retained Earnings 351 Dividends 391 Income Summary	REVENUE 411 Sales Revenue 431 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Delivery Expense 515 Supplies Expense 521 Advertising Expense 523 Salaries Expense 531 Bad debt Expense 539 Miscellaneous Expenses 540 Interest Expense

Prepare the journal entry on June 30 for Gatrong to record the first interest receipt, using the effective interest method. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3

Answer 1

Date	accounts title and explanation	post ref	debit	credit
June 30, 2018	cash (100000*6.5%)		6500
	Interest revenue (111583*5%)			5579
	Investment in Held-to-Maturity Debt Securities (balancing figure)			921