Question

Outer Mile & Co. owns vast amounts of corporate bonds. Suppose Outer Mile buys $800,000 of Truffle Co bonds at face value on January 2, 2018. The Truffleco bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. Outer Mile intends to hold the investment until maturity. Requirements 1. Journalize any required 2018 entries for the bond investment 2. How much cash interest will Outer Mile receive each year from Truffle Co? Requirement 1. Journalize any required 2018 entries for the bond investment (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Begin by journalizing Outer Mile's investment on January 2, 2018 Acer n. E cu

Answer 1

1. When company Invest in Bonds

Investment in Bond 8% A/c Dr $800000

to Bank Account $800000

As in question it’s clearly stated that Interest is payable half yearly company will receive

800000 * 8% * 1/2 = $ 32000 every half year

Entries for receipt of Interest 30 th June 2018

bank A/c Dr. $ 32000

To Interest Income $32000

Entries for receipt of Interest 31st December 2018

bank A/c Dr. $ 32000

to Interest Income $32000

2 company will receive $ 64000 every year and in year of maturity company will receive $ 800000 as maturity proceeds

3 $ 64000 will be credited to P & l for year 2018

thanks.

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