Prepare the appropriate journal entries to record the transactions for the year,
ID: 2422257 • Letter: P
Question
Prepare the appropriate journal entries to record the transactions for the year, 20X1, including any year-end adjustments. Show calculations, rounded to the nearest dollar. On January 1, 20X1, Watson Corporation used excess cash to purchase 500 bonds when the market rate of interest for bonds of a similiar risk was ten percent. Each bond has a face value of $1000 and paid interest annually on Dec 31 at eight percent maturing on December 31, 20X3. Watson's investment is accounted for as held to maturity. The market rate for bonds of similar risk was nine percent at year-end, 20X1.
Explanation / Answer
January 1, 20X1
8% Bonds (500 @$1000) a/c .....Dr 500000
To cash a/c 500000
December 31, 20X1
Cash/Bank a/c ........................Dr 40000
To interest on Bonds a/c 40000
Interest @8% on 500000 for 1 year=$ 40000
As investments are held to maturity no corresponding adjustments to be made