Chapter 10: Q1SE_1 (page 569)

Accounting for debt investments
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.
Requirements
1. Journalize any required 2018 entries for the bond investment.

Expert verified

Both sides of the Journal total $1,133,000.

Step by step solution

Long term investment can be defined as the asset or investment acquired with a view of holding it for more than one year.

Date	Accounts and explanation	Debit $	Credit $
2 Jan 2018	Held to maturity – debt investment	$1,100,000
	Cash		$1,100,000

30 June 2018	Cash	$16,500
	Interest revenue		$16,500

31 Dec 2018	Cash	$16,500
	Interest revenue		$16,500
		$1,133,000	$1,133,000

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