Question

At the end of 2018, Hodge Company prepared the following schedule of investments in trading debt securities (all of which were acquired at par value):

Company	12/31/2018 Book Value	12/31/2018 Fair Value
Thompson Company	$75,000	$74,200
Stevens Company	40,000	43,100
Totals	$115,000	$117,300

During 2019, the following transactions occurred:

July 1	Purchased Little Company debt securities for $100,000 (which is equal to par value). The securities carry an annual interest rate of 10%, mature on December 31, 2021, and pay interest seminannually on July 1 and December 31.
Oct. 11	Sold all of the Thompson Company securities for $73,000 plus interest of $2,800.
Dec. 31	Received interest of $5,000 on the Stevens Company and Little Company debt securities, and the following yearend total market values were available: Stevens Company debt securities, $45,000; Little Company debt securities, $98,000.

Required:

1.	Prepare journal entries to record the preceding information.10 journal entries

Answer 1

Debt investment is investment made in debentures, bonds and other fixed income securities. They pay interest to the investors and generally, interest is payable semi annually. Interest is the income to investors.

Journal entres in the Hodge company is as follows: Date Account of Debit ($) Credit (S) July 1 Investment of in e 2019 debt securities Dr. 100,000 To eash LBank it to I 100,000 Being Investment made in debt securities) oct. 41 2019 o 74200 cash Bank alc 75, 800 Loss on sale of debt securities ($73000-$74200) 1200 To Investment in debt securities To Interest Income Being debt securities is sold at loss and earned interest) 2800 5ooo Dec.31 2019 5000 cashtBank acco To interest Income le being interest received throuqh debt securities)