Question

On January 1, 2018, Kelly Corporation acquired bonds with a face value of $400,000 for $387,330.92, a price that yields a 11% effective annual interest rate. The bonds carry a 10% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2021, and are being held to maturity.

Required:

Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the:

1.	straight-line method of amortization
2.	effective interest method of amortization

CHART OF ACCOUNTS
Kelly Corporation
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 191 Investment in Held-to-Maturity Debt Securities LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue 431 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare journal entries to record the purchase of the bonds on January 1 and the first two interest receipts on June 30 and December 31 using the straight-line method of amortization. Additional Instructions

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PAGE 1

GENERAL JOURNAL !(Need debit credit amounts)!

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	✔	✔
2		✔
3	✔	✔
4		✔
5		✔
6	✔	✔
7		✔
8		✔

Prepare journal entries to record the purchase of the bonds on January 1 and the first two interest receipts on June 30 and December 31 using the effective interest method of amortization. Additional Instructions

PAGE 1

GENERAL JOURNAL !(Need debit credit amounts)!

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	✔	✔
2		✔
3	✔	✔
4		✔
5		✔
6	✔	✔
7		✔
8		✔

Answer 1