Ask Question
15 March, 22:21

Lance Brothers Enterprises acquired $515,000 of 3% 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 4% for bonds of similar risk and maturity. Lance Brothers paid $435,000 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) rat

+1
Answers (1)
  1. 15 March, 22:22
    0
    1st July, 2018

    investment in bond $515,000 (debit)

    discount on bond investment $80000 (credit)

    Lance Brothers paid $435,000 (credit)

    31st, December 2018

    cash $7725 (debit)

    discount on bond 975 (debit)

    interest revenue is $8700 (credit)

    Explanation:

    Given data

    investment = $515,000

    bond = 3%

    interest rate = 4%

    Lance Brothers paid = $435,000

    to find out

    investment in the bonds on July 1 and interest on December 31

    solution

    we know here

    on 1st July, 2018

    investment in bond that is = $515,000 (debit)

    and we know Lance Brothers paid = $435,000 (credit)

    so discount on bond investment = 515000 - 435000 = $80000 (credit)

    and

    on 31st, December 2018

    cash will be = investment in bond * 3% / 2

    cash = 515,000 * 3% / 2

    cash = 15450 / 2 = $7725 (debit)

    interest revenue = Lance Brothers paid * 4% / 2

    interest revenue = 435,000 * 4% / 2

    interest revenue is 17400 / 2 = $8700 (credit)

    so and discount on bond = interest - cash

    discount on bond = 8700 - 7725 = 975 (debit)
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Lance Brothers Enterprises acquired $515,000 of 3% bonds, dated July 1, on July 1, 2018, as a long-term investment. Management has the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers