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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.

Short Answer

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

01

Step-by-Step SolutionStep 1: Definition of Bond

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

02

Entry of the purchase of the bond

Date

Description

Debit

Credit

January 1, 2017

Debt Investment

$300,000

Cash

$300,0000

Being entry to record the purchase of bonds.

03

Entry of the interest Revenue

Date

Description

Debit

Credit

December 31, 2017

Cash

$18,000

Interest Revenue

$18,000

Being the entry for bond interest revenue.

04

Entry of interest received

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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Most popular questions from this chapter

On January 2, 2017, Raconteur Corp. reported the following intangible assets: (1) copyright with a carrying value of \(15,000, and (2) a trade name with a carrying value of \)8,500. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 10 years.

At December 31, 2017, Raconteur assessed the intangible assets for possible impairment and developed the following information.

Estimated Undiscounted Expected Future Cash Flows

Estimated Fair Value

Copyright

\(20,000

\)16,000

Trade name

10,000

5,000

Accounting

Prepare any journal entries required for Raconteur’s intangible assets at December 31, 2017.

Analysis

Many stock analysts indicate a preference for less-volatile operating income measures. Such measures make it easier to predict future income and cash flows, using reported income measures. How does the accounting for impairments of intangible assets affect the volatility of operating income?

Principles

Many accounting issues involve a trade-off between the primary characteristics of relevant and representationally faithful information. How does the accounting for intangible asset impairments reflect this trade-off?

Stave Company invests \(10,000,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now \)10,600,000. Interest is paid on January 1. Prepare journal entries for Stave Company to (a) record the transactions related to these bonds in 2017, assuming Stave does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Stave Company elects the fair value option to account for these bond.

What is meant by the term “underlying” as it relates to derivative financial instruments.

In what situation will the unrealized holding gain or loss on inventory be reported in income?

Question: Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of \(9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for \)24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2017?
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