1 answer

Lance Brothers Enterprises acquired $725,000 of 2% bonds, dated July 1, on July 1, 2018, as...

Question:

Lance Brothers Enterprises acquired $725,000 of 2% bonds, dated July 1, on July 1, 2018, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 3% for bonds of similar risk and maturity. Lance Brothers paid $645,000 for the investment in bonds and will receive interest semiannually on June 30 and December 31. Prepare the journal entries (a) to record Lance Brothers’ investment in the bonds on July 1, 2018, and (b) to record interest on December 31, 2018, at the effective (market) rate.


Answers

Answer
Account Title Debit Credit

A

Investments in bonds $     725,000
Discount on bonds investments $       80,000
Cash $     645,000
B Cash (725,000*2%*6/12) $         7,250
Discount on bond investment $            800
Interest revenue (645,000*3%*6/12) $         9,675
.

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