Q1SE_1
Question
Accounting for debt investments
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.
Requirements
1. Journalize any required 2018 entries for the bond investment.
Step-by-Step Solution
VerifiedBoth sides of the Journal total $1,133,000.
Long term investment can be defined as the asset or investment acquired with a view of holding it for more than one year.
Date | Accounts and explanation | Debit $ | Credit $ |
2 Jan 2018 | Held to maturity – debt investment | $1,100,000 |
|
| Cash |
| $1,100,000 |
|
|
|
|
30 June 2018 | Cash | $16,500 |
|
| Interest revenue |
| $16,500 |
|
|
|
|
31 Dec 2018 | Cash | $16,500 |
|
| Interest revenue |
| $16,500 |
|
| $1,133,000 | $1,133,000 |