Chapter 12: 2E (page 610)

On January 1, 2017, Dagwood Company purchased at par 6%
bonds having a maturity value of $300,000. They are dated January 1, 2017, and mature January 1, 2022, with interest received
on January 1 of each year. The bonds are classified in the held-to-maturity category.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest revenue on December 31, 2017.
(c) Prepare the journal entry to record the interest received on January 1, 2018.

Expert verified

a) Bond Investment account debited with $300,000

b) Interest revenue account credited with $18,000

c) Interest received account credited with $18,000

Step by step solution

A bond is a type of debt security issued by the government and companies

Date	Description	Debit	Credit

January 1, 2017	Debt Investment	$300,000
	Cash		$300,0000
	Being entry to record the purchase of bonds.

Date	Description	Debit	Credit

December 31, 2017	Cash	$18,000
	Interest Revenue		$18,000
	Being the entry for bond interest revenue.

Date	Description	Debit	Credit

January 1, 2018	Cash	$18,000
	Interest Received		$18,000
	Being the entry for bond interest received.

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Intangible assets
	Debit	Credit	Balance
Jan. 4	Research and development costs	940,000		940,000
Jan. 5	Legal costs to obtain patent	75,000		1,015,000
Jan. 31	Payment of 7 months’ rent on property leased by Bryan	91,000		1,106,000
Feb. 11	Premium on common stock		250,000	856,000
March 31	Unamortized bond discount on bonds due March 31, 2037	84,000		940,000
April 30	Promotional expenses related to start-up of business	207,000		1,147,000
June 30	Operating losses for first 6 months	241,000		1,388,000