Question

On March 31, 2018, Brodie Corporation acquired bonds with a par value of $300,000 for $313,650. The bonds are due December 31, 2023, carry a 9% annual interest rate, pay interest on June 30 and December 31, and are being held to maturity. The accrued interest is included in the acquisition price of the bonds. Brodie uses straight-line amortization.

Required:

1.	Prepare journal entries for Brodie to record the purchase of the bonds and the first two interest receipts.
2.	Next Level If Brodie failed to separately record the interest at acquisition, explain the errors that would occur in the company’s financial statements (no calculations are required).

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Jan 1 ✔	Investment in Held-to-Maturity Debt Securities✔ (313,650 - 6,750)		306,900✔
2		Interest Income✔ (300,000*9%)*3/12		6,750✔
3		Cash✔			313,650
4	June 30✔	Cash✔ (300,000*9%)*(6/12)		13,500✔
5		Investment in Held-to-Maturity Debt Securities✔		???	???
6		Interest Income✔			???
7	Dec 31✔	Cash✔(300,000*9%)*(6/12)		13,500✔
8		Investment in Held-to-Maturity Debt Securities✔		???	???
9		Interest Income✔			???

Please explain how you came up with the answer.

Answer 1

		Calculation of acquisition price
		Purchase value	$313,650
		Last interest paid date	12/31/2017
		Interest accrued for 3 months till March 31, 2018	6750	(300000*9%/12*3)
		Bond price	$306,900
		Bond value	$300,000
		Premium on issue of bonds	$6,900	(306,900-300,000)
	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	01-Jan	Investment in Held-to-Maturity Debt Securities (313,650 - 6,750)		306,900
2		Interest Income (300,000*9%)*3/12		6,750		As calculated above
3		Cash			313,650
4	30-Jun	Cash (300,000*9%)*(6/12)		13,500
5		Investment in Held-to-Maturity Debt Securities(100*3)			300
6		Interest Income(13,500-300)			13,200
7	31-Dec	Cash (300,000*9%)*(6/12)		13,500
8		Investment in Held-to-Maturity Debt Securities(100*6)			600
9		Interest Income(13,500-600)			12,900
Year	Months
2023	12	Total Premium amount	$6,900
2022	12	Total months to maturity	69
2021	12	Amortization per month	$100	(6900/69)
2020	12
2019	12
2018	9
	69

*If you have any further doubt please let me know in the comment section . Please give your valuable feedback if you are satisfied.