Explanation Bond investment: Bond investments are debt securities which pay a fixed interest revenue to the investor. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: ■ Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. ■ Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. (a) Prepare journal entry for purchase of $300,000 bonds of O City at 100% with an accrued interest of $3,000. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) Investments–O City 300,000 Interest Receivable 3,000 Cash 303,000 (To record purchase of O City bonds for cash) Table (1) ■ Investments–O City is an asset account. Since bonds investments are purchased, asset value increased, and an increase in asset is debited. ■ Interest Receivable is an asset account. Since interest to be received has increased, asset value increased, and an increase in asset is debited. ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited. (b) Prepare journal entry to record the interest revenue received. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) Cash 6,000 Interest Receivable 3,000 Interest Revenue 3,000 (To record receipt of interest revenue) Table (2) ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited. ■ Interest Receivable is an asset account. Since interest to be received is received, asset value decreased, and a decrease in asset is credited. ■ Interest Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited. Working Notes: Compute amount of interest received from O City...

14th Edition

ISBN: 9781305088436

Author: Carl Warren, Jim Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Chapter 15, Problem 1PEA

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Journalize the bond investment transactions of H Trust.

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Chapter 15 Solutions

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Journalize the bond investment transactions of H Trust.

Solution Summary: The author explains that journal entry is a set of economic events which can be measured in monetary terms.

Journalize the bond investment transactions of H Trust.

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Chapter 15 Solutions