Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q.10-21PGB_1

Expert-verified
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.

Requirements

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

Answer

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

Date

Accounts and Explanation

Debit $

Credit $

Jan 1, 2018

Held to maturity – debt investment

$800,000

Cash

$800,000

June 30, 2018

Cash

$14,000

Interest revenue

$14,000

Dec 31, a2018

Cash

$14,000

Interest revenue

$14,000

$828,000

$828,000

Calculation of Interest revenue:

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.