Question

On January 1, 2020, Shamrock Company purchased at par 8% bonds having a maturity value of $250,000. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. The bonds are classified in the held-to-maturity category. (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entry to record the interest revenue on December 31, 2020 (c) Prepare the journal entry to record the interest received on January 1, 2021. (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 for the amounts.) No. Account Titles and Explanation Debit Credit (a) (b) (0)

Answer 1

Answer to Question 1: (a). Preparation of Journal Entry at the date of the bond purchase: Journal Entries Date Account Title and Explaination Debit Credit Post. Ref. $ S 2020 Jan.1 $ 250,000.00 Investment in Bonds Cash (To record purchase of Bonds) $ 250,000.00

Answer to Question 1: (b). Preparation of Journal Entry to record interest revenue on December 31, 2020: Journal Entries Date Account Title and Explaination Debit Credit Post. Ref. S S 2020 Dec.31 $ 20,000.00 Interest Receivable ($250000 x 8%) Interest Revenue (To record interest revenue earned) $ 20,000.00

Answer to Question 1: (C). Preparation of Journal Entry to record interest received on January 1, 2021: Journal Entries Date Account Title and Explaination Post. Ref. Debit S Credit S 2021 Jan. 1 $ 20,000.00 Cash Interest Receivable (To record interest received) $ 20,000.00

Answer to Question 2: As the Investment is 40% which is more than 25% and less than 50%, Equity Method of Accounting is applicable for accounting the Investment.Journal Entries are as follows Journal Entries Date Account Title and Explaination Post. Ref. Debit S Credit S 2020 Jan. 1 $ 204,000.00 $ 204,000.00 Equity Investment in Pronghorn Company Cash (To record investment in common stock of Pronghorn Company) 2020 $ 7,900.00 Cash ($19750 x 40%) Equity Investment in Pronghorn Company (To record collection of Dividends) $ 7,900.00 2020 $ 31,600.00 Equity Investment in Pronghorn Company ($79000 x 40%) Investment Revenue (To record revenue) $ 31,600.00