On November 1, 2018, Reid Corporation acquired bonds with a face value of $1,000,000 for $963,199.78. The bonds carry a stated rate of interest of 11%, were purchased to yield 12%, pay interest semiannually on April 30 and October 31, were purchased to be held to maturity, and are due October 31, 2022. On November 1, 2019, in contemplation of a major acquisition, the bonds were sold for $1,000,000. Reid is on a fiscal year accounting period ending October 31 and uses the effective interest method. Required: Prepare journal entries to record the purchase of the bonds, the interest receipts on April 30, 2019, and October 31, 2019, and the sale of the bonds.
On November 1, 2018, Reid Corporation acquired bonds with a face value of $1,000,000 for $963,199.78. The bonds carry a stated rate of interest of 11%, were purchased to yield 12%, pay interest semiannually on April 30 and October 31, were purchased to be held to maturity, and are due October 31, 2022. On November 1, 2019, in contemplation of a major acquisition, the bonds were sold for $1,000,000. Reid is on a fiscal year accounting period ending October 31 and uses the effective interest method. Required: Prepare journal entries to record the purchase of the bonds, the interest receipts on April 30, 2019, and October 31, 2019, and the sale of the bonds.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On November 1, 2018, Reid Corporation acquired bonds with a face value of $1,000,000 for $963,199.78. The bonds carry a stated rate of interest of 11%, were purchased to yield 12%, pay interest semiannually on April 30 and October 31, were purchased to be held to maturity, and are due October 31, 2022. On November 1, 2019, in contemplation of a major acquisition, the bonds were sold for $1,000,000. Reid is on a fiscal year accounting period ending October 31 and uses the effective interest method.
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Journal entries are the recordings of financial transactions made by a business or an organization. These entries are typically used in double-entry accounting, which requires every transaction to have an equal and opposite effect on at least two different accounts.
The purpose of creating journal entries is to keep track of all financial transactions in a systematic and organized manner. This allows businesses to accurately calculate their profits and losses, monitor their cash flow, and prepare financial statements such as the balance sheet, income statement, and statement of cash flows.
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