Suppose on June 1, 20x8, the Valley Chamber Orchestra purchased $100,000 of 10-year, 7% American Electric...
Suppose on June 1, 20x8, the Valley Chamber Orchestra purchased $100,000 of 10-year, 7% American Electric Power bonds at 102. The bonds pay interest on June 1 and December 1.
- How would the Orchestra journalize this investment and recognize income on December 1?
- What adjusting entry would be required on December 31, 20x8, the Orchestra's fiscal year end.
Homework Answers
| Date | General Journal | Debit | Credit |
| June 1, 20x8 | Investment in American Electric Power bonds | 102000 | |
| Cash ($100000 x 102/100) | 102000 | ||
| (To record purchase of bond investment) | |||
| December 1, 20x8 | Cash ($100000 x 7% x 6/12) | 3500 | |
| Interest revenue | 3400 | ||
| Investment in American Electric Power bonds [($102000 - $100000)/20] | 100 | ||
| (To record interest received and amortization of bond premium) | |||
| December 31, 20x8 | Interest receivable ($100000 x 7% x 1/12) | 583.33 | |
| Interest revenue | 566.66 | ||
| Investment in American Electric Power bonds [($102000 - $100000) x 1/120] | 16.67 | ||
| (To record adjusting entry for interest) |
Note: The straight-line method of amortization has been used.
Kindly round off as required since no instructions have been provided with the question regarding the same.
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