Lance Brothers Enterprises acquired $770,000 of 5% bonds, dated July 1, on July 1, 2016, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 6% for bonds of similar risk and maturity. Lance Brothers paid $690,000 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, 2016, and (b) to record interest on December 31, 2016, at the effective (market) rate

Question

Lillian

Mathematics

7 August, 03:34

Lance Brothers Enterprises acquired $770,000 of 5% bonds, dated July 1, on July 1, 2016, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 6% for bonds of similar risk and maturity. Lance Brothers paid $690,000 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, 2016, and (b) to record interest on December 31, 2016, at the effective (market) rate

+2

Answers (1)

Know the Answer?

Lyric Hale · Answer 1

Cash (2.00% * $770,000) = $15,400

Interest revenue (2.50% * $690,000) = $17,250.

Discount = 770,000 - 690,000 = 80,000

Date General Journal Debit Credit

July 1, 2016 Investment in bonds 770,000

Discount on bond investment 80,000

Cash 690,000

Dec 31, 2016 Cash 15,400

Discount on bond investment 1850

Interest revenue 17,250