Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 10: Q18PGA_1 (page 572)

Accounting for debt investments

Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond investment until maturity.

Requirements

1. Journalize Solomon Brothers’ transactions related to the bonds for 2018.

Short Answer

Expert verified

Both sides of the journal total$530,000.

Step by step solution

01

Definition of Bonds Payable

An account reflecting the financial liability against the money borrowed through the issue of debt securities is known as a bond payable.

02

Journal Entries for Transaction in 2018

Date

Accounts and Explanation

Debit $

Credit $

1 Jan 2018

Held to maturity – debt investment

$500,000

Cash

$500,000

30 June 2018

Cash

$15,000

Interest revenue

$15,000

31 Dec 2018

Cash

$15,000

Interest revenue

$15,000

$530,000

$530,000

Calculation of Interest revenue:

InterestRevenue=Principal×Interestrate×612=500,000×6%×612=$15,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What adjustment must be made at the end of the period for trading debt investments and available-for-sale debt investments?

Where on the financial statements is an unrealized holding gain or loss on available-for-sale debt investments reported?

What is equity security?

On August 20, 2018, Mraz, Co. decides to invest excess cash of \(2,500 by purchasing Virginia, Inc. bonds. At year-end, December 31, 2018, the market price of the bonds was \)2,000. The investment is categorized as available-for-sale debt. Journalize the adjusting entry needed at December 31, 2018.

On May 15, 2018, Mayer Co. invests \(8,000 in John, Inc. stock. John pays Mayer a \)200 dividend on November 15, 2018. Mayer sells the John stock on December 10, 2018, for $7,500. Assume the Mayer Co. does not have significant influence over John, Inc. Journalize the 2018 transactions related to Mayer’s investment in John stock.
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Organizational Behavior

Read Explanation

Strategic Analysis

Read Explanation

Financial Performance

Read Explanation

Business Operations

Read Explanation

Managers

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free