
(1)
Bond investment:
Bond investments are debt securities which pay fixed interest revenue to the investor.
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The bond investment transactions in the books of Company RM
(1)

Explanation of Solution
Prepare journal entry for purchase of $100,000 bonds of Company SB, at face amount with an accrued interest of $900.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
April | 1 | Investments–Company SB Bonds | 90,000 | ||
Interest Receivable | 900 | ||||
Cash | 90,900 | ||||
(To record purchase of Company SB bonds for cash) |
Table (1)
- Investments–Company SB Bonds is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited.
- Interest Receivable is an asset account. Since interest to be received has increased, asset value increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for purchase of $210,000 bonds of Company G, at face amount with an accrued interest of $700.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
May | 16 | Investments–Company G Bonds | 42,000 | ||
Interest Receivable | 70 | ||||
Cash | 42,070 | ||||
(To record purchase of Company G bonds for cash) |
Table (2)
- Investments–Company G Bonds is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited.
- Interest Receivable is an asset account. Since interest to be received has increased, asset value increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry to record the interest revenue received from Company SB bonds.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
August | 1 | Cash | 2,700 | ||
Interest Receivable | 900 | ||||
Interest Revenue | 1,800 | ||||
(To record receipt of interest revenue) |
Table (3)
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Interest Receivable is an asset account. Since interest to be received is received, asset value decreased, and a decrease in asset is credited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Notes:
Compute amount of interest received from Company SB.
Prepare journal entry for $12,000 bonds of Company SB sold at 101%, with an accrued interest of $60.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
September | 1 | Cash | 12,180 | ||
Interest Revenue | 60 | ||||
Gain on Sale of Investments | 120 | ||||
Investments–Company SB Bonds | 12,000 | ||||
(To record sale of Company SB bonds) |
Table (4)
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
- Gain on Sale of Investments is an income account. Since income increases equity, equity value is increased, and an increase in equity is credited.
- Investments–Company SB Bonds is an asset account. Since bond investments are sold, asset value decreased, and a decrease in asset is credited.
Working Notes:
Calculate the cash received from the sale of bonds.
Particulars | Amount ($) |
Cash proceeds from sale of $12,000 bonds
|
12,120 |
Add: Accrued interest revenue | 60 |
Cash received | $12,180 |
Table (5)
Calculate the realized gain (loss) on sale of $40,000 bonds.
Particulars | Amount ($) |
Cash proceeds from sale of $12,000 bonds
|
12,120 |
Cost of bonds sold | (12,000) |
Gain (loss) on sale of bonds | $120 |
Table (6)
Prepare journal entry to record the interest revenue received from Company G bonds.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
November | 1 | Cash | 840 | ||
Interest Receivable | 70 | ||||
Interest Revenue | 770 | ||||
(To record receipt of interest revenue) |
Table (7)
Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Interest Receivable is an asset account. Since interest to be received is received, asset value decreased, and a decrease in asset is credited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Notes:
Compute amount of interest received from Company G.
Prepare journal entry for accrued interest on Company SB bonds.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
December | 31 | Interest Receivable | 1,950 | ||
Interest Revenue | 1,950 | ||||
(To record interest accrued) |
Table (8)
- Interest Receivable is an asset account. Since interest to be received has increased, asset value increased, and an increase in asset is debited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
Prepare journal entry for accrued interest on Company G bonds.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2016 | |||||
December | 31 | Interest Receivable | 280 | ||
Interest Revenue | 280 | ||||
(To record interest accrued) |
Table (9)
- Interest Receivable is an asset account. Since interest to be received has increased, asset value increased, and an increase in asset is debited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
Prepare journal entry to record the interest revenue received from Company SB bonds.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2017 | |||||
February | 1 | Cash | 2,340 | ||
Interest Receivable | 1,950 | ||||
Interest Revenue | 390 | ||||
(To record receipt of interest revenue) |
Table (10)
Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Interest Receivable is an asset account. Since interest to be received is received, asset value decreased, and a decrease in asset is credited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Notes:
Compute amount of interest received from Company SB.
Prepare journal entry to record the interest revenue received from Company G bonds.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
2017 | |||||
May | 1 | Cash | 840 | ||
Interest Receivable | 280 | ||||
Interest Revenue | 560 | ||||
(To record receipt of interest revenue) |
Table (11)
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Interest Receivable is an asset account. Since interest to be received is received, asset value decreased, and a decrease in asset is credited.
- Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Notes:
Compute amount of interest received from Company G.
(2)
To explain: The impact of bonds, if the portfolio is classified as available-for-sale investment
(2)

Explanation of Solution
Available-for-sale investments are reported at fair value. If the bond portfolio is classified as available-for-sale investment, the bond portfolio should be reported at fair value. The changes in the cost and fair value would be adjusted using the valuation account and unrealized gain (loss) account
Want to see more full solutions like this?
Chapter 13 Solutions
Financial & Managerial Accounting
- TrendCo uses the straight-line method for depreciation. Assets purchased between the 1st and 15th of the month are depreciated for the entire month; assets purchased after the 15th are treated as though they were acquired the following month. On June 18, 20X3, TrendCo purchases a machine for $18,000 that it expects to last for 7 years; TrendCo expects the machine to have a residual value of $4,000. What is the 20X3 depreciation expense for the machine?arrow_forwardI need help with this General accounting question using the proper accounting approach.arrow_forwardI want to correct answer general accounting questionarrow_forward
- Bad Apple, Inc., uses direct labor hours to allocate overhead costs. If Bad Apple estimates $40,000 of overhead and 50,000 hours of direct labor this period, the overhead applied when 4,500 direct labor hours are used should be: a. $3,520 b. $3,600 c. $4,400 d. $5,500arrow_forwardProvide correct answer with accounting questionarrow_forwardCalculate the company's earnings sharesarrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning



