Q.10-21PGB_2 - Horngren'S Financial And Managerial Accounting

Question

Question: P10-21B Accounting for debt investments

Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Hale and Sons intends to hold the Tyson Way bond investment until maturity. 

Requirements 

2. Journalize the entry required on the Tyson Way bonds maturity date. (Assume the last interest payment has already been recorded.)

Step-by-Step Solution

Answer

Answer

Journal entry at maturity date will include a credit of the investment account and debit of the cash account.

Step 1: Definition of Annual Interest Rate

The rate used to determine interest expense for the fiscal year is the annual interest rate. It is multiplied by the principal amount to determine interest expenses.

Step 2: Journal Entry at Maturity Date

Date	Accounts and Explanation	Debit $	Credit $
31 Dec 2022	Cash	$800,000
	Held-to-maturity – debt investment		$800,000
		$800,000	$800,000