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Horngren'S Financial And Managerial Accounting
Found in: Page 573

Short Answer

Question: P10-21B Accounting for debt investments

Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Hale and Sons intends to hold the Tyson Way bond investment until maturity.


1. Journalize Hale and Sons’s transactions related to the bonds for 2018.


Both sides of the journal totals $828,000.

See the step by step solution

Step by Step Solution

Step 1: Definition of Principal Amount

The actual amount of money transferred to the borrower by the lender is known as the principal amount. The interest is charged on this amount only.

Step 2: Journal Entries for the Transaction


Accounts and Explanation

Debit $

Credit $

Jan 1, 2018

Held to maturity – debt investment




June 30, 2018



Interest revenue


Dec 31, a2018



Interest revenue




Calculation of Interest revenue:

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