On May 1, 2012, Glacier Bay Co. acquired $30,000 of Horizon Corp. 8% bonds at 97
ID: 2483906 • Letter: O
Question
On May 1, 2012, Glacier Bay Co. acquired $30,000 of Horizon Corp. 8% bonds at 97 plus accrued interest. Interest on bonds is payable semiannually on March 1 and September 1, and bonds mature on September 1, 2015.
On May 1, 2013, Glacier Bay Co. sold bonds of $10,000 for 103 plus accrued interest. On July 1, 2014, bonds of $15,000 were exchanged for 2,000 shares of Horizon Corp. common, no par value, quoted on the market on this date at $9. Interest was received on bonds to date of exchange.
On Septmeber 1, 2015, remaining bonds were redeemed and accrued interest was received.
Instructions:
Give journal entries for 2012-2015 to record the preceding transactions on the books for Glacier Bay Co., including any adjustments that are required at the end of each fiscal year ending on Decmeber 31. Assume bond premium or discount amortization is by the straight line mehtod. Ignore any potential impact of year to year market value changes on the accounting for the bonds.
Explanation / Answer
Journal Entries
Interest accrued on bond purchased = $30000x8%x2/12 =400
Thus Cost of bonds = $30000x97% + $400 = $29500
Date Particulars Debit($) Credit($)Interest accrued on bond purchased = $30000x8%x2/12 =400
Thus Cost of bonds = $30000x97% + $400 = $29500
1 may 2012 Investment in bonds A/c Dr. $29500 To Cash A/c $29500 1.sep2012 Interest for 6 months = 30000x8% = $2400/2 =1200 Cash A/c Dr $1200 To Inerest income A/c $800 To Investments in bonds $400 1.Mar. 2013 Cash A/c Dr. $1200 To Interest income A/c $1200 1.May.2013 Cash A/c Dr $10300 To Bonds $10000 To Premium on bonds $300 Amount of amortisation per half year = 300/5 = 60 1.sep.2013 Cash A/c Dr. $1200 To Interest Income $1200 For Interest expense Interest Expense A/c Dr $273.33 Premium on bond $60 To Cash A/c 333.33 1.mar.2014 Cash A/c Dr. $1200 To Interest income A/c $1200 Interest Expense A/c Dr $340 Premium on bond A/c Dr $60 To Cash A/c $400 1.july.2014 Investment in shares of Horizon Corp A/c $18000 To investment in bonds $15000 To gain on exchanfge A/c $3000 Cash A/c Dr $400 To interest income $400 1.Sep 2014 Cash A/c Dr. $600 To Interest income $600 Interest expense A/c Dr. $340 Premium on bond $60 To Cash A/c $400 1.mar.2015 Cash A/c Dr. $600 To Interest Income $600 Interest Expenses A/c Dr $340 Premium on bond A/c Dr $60 To Cash A/c $400 1.Sep.2015 Cash A/c Dr $600 To Interest income A/c $600 Interest Expenses A/c Dr. $340 Premium on bond A/c $60 To Cash A/c $400 Cash A/c Dr. $15000 To Investment in bonds A/c $15000Related Questions
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