Question1 On September 1, Blue Spruce Ltd. purchased $80,700 of five-year, 8% bo

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Question1 On September 1, Blue Spruce Ltd. purchased $80,700 of five-year, 8% bonds for $74,469, resulting in an effective (yield) rate of 10%. The bonds pay interest each March 1 and September 1, Blue Spruce Ltd. applies ASPE, accounts for the investment under the amortized cost approach using the effective interest accounting policy, and has a December 31 year end. The following March 1, after receiving the semi-annual interest on the bonds, Blue Spruce sells the bonds for $76,969 Your answer is partially correct. Try again. Prepare Blue Spruce's journal entry for the purchase of the investment. (Credit account titles are automatically indented when the 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 September 1 Bond Investment at Amortized Cost 80700 Cash 80700

Explanation / Answer

Required journal entries are as prepared below:

Year Particulars L.F Debit ($) Credit ($) Sep-01 Bond Investment at amortized cost 74,469 cash 74,469 (for investment in bond) Dec-31 Interest Receivable (80,700*8%*4/12) 2,152 Bond Investment at amortized cost 330 Interest Income (74,469*10%*4/12) 2,482 (for interest for 4 month accrued) Mar-01 Cash (80,700*8%*6/12) 3,228 Bond Investment at amortized cost 165 Interest Receivable (80,700*8%*4/12) 2,152 Interest Income (74,469*10%*2/12) 1,241 (for interest for 4 month accrued) Mar-01 Cash 76,969    Bond Investment at amortized cost 74,964    gain on sale of investment 2,005 (For Bond Investment sold)

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