Gonzalez Company acquired $200,000 of Walker Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $70,000 of the bonds for 97. Journalize entries to record the following in Year 1: For a compound transaction, if an amount box does not require an entry, leave it blank.

Answer and Explanation:

The journal entries are shown below:

a. Investment Dr $200,000

To Cash $200,000

(Being the acquirement is recorded)

b. Cash Dr $6,000

To Interest revenue $6,000

(Being the cash is recorded)

The computation is shown below:

= $200,000 * 6% * 6 months : 12 months

= $6,000

c. Cash $67,900 ($70,000 * 97%)

Loss on sale of investment $2,100

To Investment $70,000

(Being the cash is recorded)

d. Interest receivable $1,300

To Interest revenue $1,300

(Being the interest receivable is recorded)

= ($200,000 - $70,000) * 6% * 6 months : 12 months

= $1,300