Saturday, 3 January 2015

Floyd Corporation had the following transactions pertaining to debt investments.

Floyd Corporation had the following transactions pertaining to debt investments.

Jan. 1
Purchased 70 Petal Co. 8%, $1,900 bonds for $133,000 cash plus brokerage fees of $860. Interest is payable semiannually on July 1 and January 1.
July 1
Received semiannual interest on Petal Co. bonds.
July 1
Sold 42 Petal Co. bonds for $90,440 less $500 brokerage fees.

(a)
Journalize the transactions.
(b)
Prepare the adjusting entry for the accrual of interest at December 31.



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Explanation
(a)
Jan. 1
Cash = ($133,000 + $860) = $133,860


 







July 1
Cash = ($133,000 x 8% x 1/2) = $5,320


 







July 1
Cash = ($90,440 – $500) = $89,940




Debt Investments = ($133,860 x 42/70) = $80,316




Gain on Sale of Debt Investments = ($89,940 – $80,316) = $9,624


 





(b)
Dec. 31
Interest Revenue = ($53,200 x 8% x 1/2) = $2,128