Question

On February 1, 2020, Aggie Corporation sold its investment in Smith Corporation bonds for $12,500. The bonds have a face value of $12,000 and a stated interest rate of 10%. The market value of the bonds on December 31, 2019 was $12,300.Required: Prepare the journal entries to record the sale of the bonds and the adjustments of the unrealized gain or loss

Answer 1

Answer:

                                Journal Entries

Date     Account Titles and Explanation    Debit         Credit

Feb. 1    Cash                                                 $12,500  

                  Bonds                                                            $12,300

                  Gain on sale of bonds                                  $200

            (Being bond issued at premium)

Feb. 1     Unrealized Gain                              $300

                     Income Summary                                        $300

            (Being unrealized gain transferred)

Notes:

1) The Unrealized gain will be transferred to income statement at the time of sale. $300 ($12,300 - $12,000)

2) It is assumed that interest receivable for January month is included while calculating the selling price of bonds, hence no need to consider again.