Gillooly Co. purchased $360,000 of 6%, 20-year Lumpkin County bonds on May 11, Year 1, directly from
Question:
Gillooly Co. purchased $360,000 of 6%, 20-year Lumpkin County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Gillooly Co. sold $90,000 of the Lumpkin County bonds at 98 plus $450 accrued interest less a $200 brokerage commission.
Journalize the entries to record the following: Do not round interim calculations. Round final answers to nearest dollar. If an amount box does not require an entry, leave it blank. Assume a 360-day year.
a. The purchase of the bonds on May 11 plus 40 days of accrued interest.
Year 1 May 11 | Investments-Lumpkin County Bonds | ||
Interest Receivable | |||
Cash |
a. Record the investment at face (debit), interest receivable (debit) for [face amount of bonds x interest rate x (40 days ÷ 360 days)], and the cash paid for the sum of cash plus interest receivable.
b. Semiannual interest on October 1.
Year 1 Oct. 1 | Cash | ||
Interest Receivable | |||
Interest Revenue |
b. Bond principal x interest rate x half a year = total interest. Record this amount as a debit to Cash. Reduce interest receivable (credit) by the amount calculated in requirement (a) and increase interest revenue (credit) for the difference between the cash and the interest receivable adjustment.