Bocelli Co. purchased $162,000 of 7%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $31,200 of the Sanz County bonds at 96 plus $182 accrued interest less a $105 brokerage commission. Provide journal entries for the following (refer to the Chart of Accounts for exact wording of account titles): a. The purchase of the bonds on May 11 plus 40 days of accrued interest; assume a 360-day year. b. Semiannual interest on October 1. c. Sale of the bonds on October 31. d. Adjusting entry for accrued interest of $2,289 on December 31, Year 1.

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A:

Q: Entries for Investment in Bonds, Interest, and Sale of Bonds Bocelli Co. purchased $84,000 of 7%,…

A: The journal entries are prepared to keep the record of day to day transactions of the business.

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A: Y/2 = (I + (F - NI)/n)/((F + P)/2)

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A:

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.