On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of...

Question:

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $305,800. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.

Required:

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare the journal entry to record the interest received for 2013.

(c) Prepare the journal entry to record the interest received for 2014.

No. Date Account Titles and Explanation Debit Credit
(a) Jan. 1, 2013                      _                          
                     _                          
(b) Dec. 31, 2013                      _                          
                     _                          
(c) Dec. 31, 2014                      _                          
                     _                          

Accounting for Investment in Bonds

Investment Bonds are debt securities whereby the issuer owes the bond holders a debt. The issuer is obliged to pay interest and repay the principal amount at maturity. Under a bond the investing company is lending money to the issuer entity, in return, the issuer promises to pay a specified rate of interest at regular intervals during the life of the bond. The issuer also repays the face value of the bond at maturity of the term.

Investments Bonds are recorded as assets under Non current assets in the Balance Sheet. The interest received is recorded as income in the Income Statement.

Answer and Explanation:

Journal Entries

No. Date Account Titles and Explanation Debit Credit
(a) Jan. 1, 2013 12% Bonds...

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