Question

The following information relates to the debt securities investments of Sheffield Company. 1. On February 1, the company purchased 11% bonds of Gibbons Co. having a par value of $318,000 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 $219,600 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 97 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 93 and 91, 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 Ofor the amounts.) Account Titles and Explanation Debit Credit No. Date (1) Feb. 1 (3) Jul. 1 (4) Sep. 1

Answer 1

Solution:

No.of Event	Date	Account Title and Explanation	Debit ($)	Credit ($)
1.	1 Feb.	Investment in Bond - Gibbons co.	318,000
		Interest receivable (318,000 × 11% ×4/12)	11,660
		Cash		329,660
		(To record investment in bond)
2.	1Apr.	Cash	17,490
		Interest receivable		11,660
		Interest revenue(318,000 × 11% × 2/12)		5,830
		(To record semiannual interest received)
3.	1 July.	Investments in Bonds - Sampson Inc.	219,600
		Interest receivable (219,600 × 9% × 1/12)	1,647
		Cash		221,247
		(To record purchase bond)
4.	1 Sep.	Cash	56,074
		Available for sale securities		55,200
		Realized gain on the sale of available for sale securities		874
		(To record realized gain)
5.	1.Oct.	Cash (318,000 × 11% × 6/12)	17,490
		Interest income		17,490
		(To record interest income)
6.	1Dec.	Cash (219,600 × 9% ×5/12)	8,235
		Interest income		8,235
		( To record interest income)
7.		Gibbons co.
	31Dec.	Available for sale securities ($318,000 ×93% =$295,740)-$318,000 =$22,260		22,260
		Unrealized loss other comprehensive income	22,260
		Sampson inc.
		Available for sale securities ($219,200 ×91% -199,472) -$219,200 = $19,728		19,728
		Unrealized loss other comprehensive income	19,728
		( To record adjustment)

Explanation:

Sep. 1 = ($55,200 × 97% =$53,544) +(55200 × 11% ×5/12 =$2,530) =$56,074 - $55,200 =$874