Question

The following information relates to the debt securities investments of Crane Company.

1.		On February 1, the company purchased 12% bonds of Gibbons Co. having a par value of $315,600 at 100 plus accrued interest. Interest is payable April 1 and October 1.
2.		On April 1, semiannual interest is received.
3.		On July 1, 9% bonds of Sampson, Inc. were purchased. These bonds with a par value of $212,400 were purchased at 100 plus accrued interest. Interest dates are June 1 and December 1.
4.		On September 1, bonds with a par value of $55,200, purchased on February 1, are sold at 99 plus accrued interest.
5.		On October 1, semiannual interest is received.
6.		On December 1, semiannual interest is received.
7.		On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93, respectively.

(a)

Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are available-for-sale securities. (Note to instructor: Some students may debit Interest Receivable at date of purchase instead of Interest Revenue. This procedure is correct, assuming that when the cash is received for the interest, an appropriate credit to Interest Receivable is recorded.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(1) Feb. 1

(2) Apr. 1

(3) Jul. 1

(4) Sep. 1

(5) Oct. 1

(6) Dec. 1

(7)Dec. 1 (To record interest) and (to record adjustment)

Answer 1

No.	Date	Account Titles and Explanation	Debit	Credit
1	Feb 1	Debt Investment	315,600
		Interest Revenue	12,624		(315,600 x 12% x 4/12)
		Cash		328,224
2	April 1	Cash	18,936		(315,600 x 12% x 6/12)
		Interest Revenue		18,936
3	July 1	Debt Investment	212,400
		Interest Revenue	1,593		(212,400 x 9% x 1/12)
		Cash		213,993
4	Sep 1	Cash	57,408		(55,200 x 99%) + (55,200 x 12% x 5/12)
		Loss on Sale of Investment	552
		Debt Investment		55,200
		Interest Revenue		2,760	(55,200 x 12% x 5/12)