Exercise 15-5 Accounting for short-term available-for-sale securities LO P3 Prep

Question

Exercise 15-5 Accounting for short-term available-for-sale securities LO P3 Prepare journal entries to record the following transactions involving the short-term securities investments of Krum Co., all of which occurred during year 2017. a. On August 1, paid $450,000 cash to purchase Houtte's 9% debt securities ($450,000 principal), dated July 30, 2017, and maturing January 30, 2018 (categorized as available-for-sale securities). b. On October 30, received a check from Houtte for 90 days' interest on the debt securities purchased in transaction a. (Use 360 days in a year. Do not round your intermediate calculations.)

Explanation / Answer

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1 Account Debit Credit Short Term investment-Available for sale (Houtte) 450000 Cash 450000 (Purchase of securities) 2 Cash 10125 Interest Revenue 10125 (interest revenue 450000*9%*90/360)

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