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. |
Explanation
| (a) |
| Jan. 1 |
| Cash | = | ($133,000 + $860) | = | $133,860 |
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| July 1 |
| Cash | = | ($133,000 x 8% x 1/2) | = | $5,320 |
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| July 1 |
| Cash | = | ($90,440 – $500) | = | $89,940 |
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| Debt Investments | = | ($133,860 x 42/70) | = | $80,316 |
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| Gain on Sale of Debt Investments | = | ($89,940 – $80,316) | = | $9,624 |
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| (b) |
| Dec. 31 |
| Interest Revenue | = | ($53,200 x 8% x 1/2) | = | $2,128 |
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