Question

Bocelli Co. purchased $162,000 of 4%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $30,000 of the Sanz County bonds at 99 plus $100 accrued interest less a $110 brokerage commission.

Provide journal entries for the following (refer to the Chart of Accounts for exact wording of account titles):

a.	The purchase of the bonds on May 11 plus 40 days of accrued interest; assume a 360-day year.
b.	Semiannual interest on October 1.
c.	Sale of the bonds on October 31.
d.	Adjusting entry for accrued interest of $1,320 on December 31, Year 1.

Answer 1

Answer :-

Journal entry are as follows :-

No.	Date	Particular	Debit $	Credit $
a)	May 11	Investment in bonds -Sanz County A/c Dr	$162,000
		Interest receivable A/c Dr. ($162,000 × 4% × 40/360)	$720
		To Cash A/c ($162,000 + $720)		162,720
b)	Oct 1.	Cash A/c Dr. ($162,000 × 4% × 6/12)	$3,240
		To Interest receivable A/c		$720
		To Interest revenue A/c ($3,240 - $720)		2,520
c)	Oct 31	Cash A/c Dr. ($30,000 × 99% + $100 as accrued interest - $110 as brokerage commission)	$29,690
		Loss on sale of investment A/c Dr.	$410
		To Investment in bonds -Sanz County A/c		$30,000
		To Interest revenue A/c		$100
d)	Dec 31	Interest receivable A/c	1,320
		To Interest revenue A/c		1,320

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