5 Check m QS 156 Debt securities transactions LO P2 On Janua

5 Check m QS 15-6 Debt securities transactions LO P2 On January 1, 2017, Garzon purchased 6 00% bonds issued by PBS Utilities at a cost of $57600, which is their par value. The bonds nts y 1 and January 1. For 2017, prepare entries to record Garzon\'s July 1receipt of interest and it December 31 year end interest accrual. (Do not round your intermediate colculations)

Solution

JOURNAL ENTRIES OF INTEREST INCOME FOR GARZON

1.For July 1 receipt of interest

ACCOUNT DEBIT CREDIT

Bank account 1728

To interest income account 1728

(Being interest on bond received on July 1 as per the bonds contract)

Note: Calculation of interest

(57600×6%)/2 = 1728

The question says 6% bonds,that means 6% interest per annum.

2. December 31 st year end interest

ACCOUNT DEBIT CREDIT

Interest receivable account 1728

Interest income 1728

(Being interest on bond receivable recorded)

Note:

a . The interest on bond will be received on Jan 1 ,2018 but the income is of Jan to Dec 2017. Therefore recorded in this year Jan to Dec 2017 itself.

b.The interest calculation is same as above in this case also.