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1 October, 11:19

7. On January 1, 2018 , the Myrth Corporation decides to invest in Small Town bonds. The bonds mature on December 31, 2024 , and pay interest of 7 % on June 30 and December 31. The market rate of interest was 7 % on January 1, 2018 , so the $ 60 comma 000 maturity-value bonds sold for face value. Myrth Corporation intends to hold the bonds until maturity. Journalize the transactions related to Myrth Corporation's investment in Small Town bonds during 2018

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  1. 1 October, 12:13
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    Journal Entries

    Date Accounts & Explanations Debit ($) Credit ($)

    Jan 1 2018 Bonds receivables 60,000

    Cash 60,000

    (Investment in bonds)

    30-Jun-18 Cash 2,100

    Interest income 2,100

    (6 month interest received)

    31-Dec-18 Cash 2,100

    Interest income 2,100

    (6 month interest received)

    Explanation:

    Bond Value = $60,000

    Interest rate = 7%

    Interest earned half yearly, effective rate = 7% * 6/12 = 3.5%

    Half Yearly interest amount = 60,000 x 3.5% = $2100

    Journal Entries

    Date Accounts & Explanations Debit ($) Credit ($)

    Jan 1 2018 Bonds receivables 60,000

    Cash 60,000

    (Investment in bonds)

    30-Jun-18 Cash 2,100

    Interest income 2,100

    (6 month interest received)

    31-Dec-18 Cash 2,100

    Interest income 2,100

    (6 month interest received)
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