2. On July 1, 2014, the City of Corfu received a gift of debt securities of XYZ
ID: 2561321 • Letter: 2
Question
2. On July 1, 2014, the City of Corfu received a gift of debt securities of XYZ Company with a nominal (par) value of $1,600,000. Income is to be used to make awards for civic achievements. As of the date of the gift, the securities had a market value of $1,668,000. Included in this amount is accrued interest of $18,000. The bonds carried an annual interest rate of 6%, payable semiannually on April 1 and October 1 . During the fiscal year ended June 30, 2015, the following transactions took place: (20 points) 1. The gift was received. 2. On October 1, $48,000 in interest was received. 3. On April 1, $48,000 in interest was received. 4. On April 1, immediately after the receipt of interest, the XYZ bonds were sold for $1,662,000. The proceeds were invested in ABC bonds, which also carried a 6% annual interest rate, payable semiannually on April 1 and October 1. The bonds were purchased at par value. 5. On June 30, 2015, accrued interest on the ABC bonds was recognized 6. On June 30, 2015, awards were made in the amount of $60,000 7. As of June 30, 2015, the fair value of the fair value of the ABC bonds was $1,664,000, exclusive of acerued interest. Required:. Record the above transactions on the books of the City of Corfu Private-Purpose Trust Fund.Explanation / Answer
Journal Entries (in the books of CITY OF CORFU)
Investment in Bonds-XYZ - Debit $16,50,000
Accrued Interest Receivable - Debit $18,000
To Additions -Contributions-Individuals -Credit $16,68,000
(to record debt security is received as gift and interest accrued on July 1st 2014)
Cash - Debit $48,000
To Accrued Interest Receivable - Credit $18,000
To Additions -Contributions - Earnings $30,000
(to record interest received on securities on October 1st)
Cash - Debit $48,000
To Additions -Contributions - Earnings $48,000
(to record interest received on securities on April 1st)
Cash -Debit $1,662,000
Additions-Investment Earnings - $12,000
Investment in Bonds-XYZ - Credit $16,50,000
(to record sale of investment in bonds of XTZ and also net Increase in Fair Value of Investments on April 1st)
Investment in Bonds-ABC - Debit $16,62,000
To cash - Credit $16,62,000
(to record of purchase of bond invest of ABC )
Accrued Interest Receivable - Debit $24,930
To Additions -Contributions-Individuals -Credit $24,930
(to record of accrual on interest for 3 months on June 30th)
Deductions - Awards - Debit $60,000
To Cash - Credit $60,000
(to record of awards made in cash on June 30th)
Investment in Bonds-ABC - Debit $2,000
To Accrued interest - Credit $2,000
(to record Additions-Investment Earnings, accrued interest)
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