Brief Exercise 116 On April 1, 2018, West Company purchased $420,000 of 5.00% bo

Question

Brief Exercise 116

On April 1, 2018, West Company purchased $420,000 of 5.00% bonds for $436,550 plus accrued interest as an available-for-sale security. Interest is paid on July 1 and January 1 and the bonds mature on July 1, 2023.

Prepare the journal entry on April 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation      Debit.          Credit

The bonds are sold on November 1, 2019 at 103 plus accrued interest. Amortization was recorded when interest was received by the straight-line method. Prepare all entries required to properly record the sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Account Titles and Explanation.       Debit.           Credit
                                                                  
_______________________      _______    _________

________________________.     ________   ________

(To record amortization)

_________________________     ________    _________

_________________________.     ________    _______

(To record interest)

_________________________.        ________ ___________

__________________________        ________   __________

_________________________.         _________    ________

(To record the sale of the bonds)

Explanation / Answer

SOLUTION:

Debit Credit Apr 1 -2018 Debt Investments 420,000 Interest Revenue (Accrued) 5250 Cash 425,250 420,000 * 5% * 3/12 Nov 1 - 2019 Interest Revenue 1051 Debt Investments 1051 (436,550 - 420,000) *4/63 Nov 1 - 2019 Cash 7000 Interest Revenue 7,000 (420,000 * 5% * 4/12) Nov 1 - 2019 Cash (420,000 * 103/100) 432,600 Gain on sale of investments 1,041 Debt investments 431,559 436,550 - ((436,550 - 420,000) *19/63)

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