The following bond investment transactions were completed during 2016 by Starks

Question

The following bond investment transactions were completed during 2016 by Starks Company: Jan. 31 Purchased 87, $1,000 government bonds at 100 plus 30 days’ accrued interest. The bonds pay 6% annual interest on July 1 and January 1. July 1 Received semiannual interest on bond investment. Aug. 29 Sold 45, $1,000 bonds at 99 plus $450 accrued interest.

Required: a. Journalize the entries for these transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.

b. Provide the December 31, 2016, adjusting journal entry for semiannual interest earned on the bonds. Journalize the entries for the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.

Journalize the entries for the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.

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JOURNAL

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Adjusting Entries

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DATE DESCRIPTION POST. REF. DEBIT CREDIT

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Adjusting Entries

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Explanation / Answer

Date Account title Debit credit jan 31 Investment in debt securities   (87*1000) 87,000 Interest receivable                   (87000*.06*30/360) 435 cash 87435 [investment made) July 1 cash 2610 Interest receivable 435 Interest revenue      [87000*.06 *6/12]=2610-435 2175 [first semiannual interest received] 31 dec Interest receivable 2610 Interest revenue 2610 [interest accrued ]

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