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Afton Co. purchased $24,000 of 4%, 10-year Davis County bonds on July 12, 2012, directly from the county at par value. The bonds pay semiannual interest on May 1 and November 1. On December 1, 2012, Afton Co. sold $6,000 of the Davis County bonds at 98 plus $20 accrued interest, less a $100 brokerage commission. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0". Assume a 360-day year. Hide • Hint(s) a. Provide the journal entry for the purchase of the bonds on July 12, plus 72 days of accrued interest. 2012 July 12 Check My Work Feedback a. Record the investment at face (debit), interest receivable (debit) for [face amount of bonds x interest rate x (72 days ÷ 360 days)], and the cash paid for the sum of cash plus interest receivable. Hide b. Provide the journal entry for semiannual interest on November 1. Nov. 1 Check My Work Feedback b. Bond principal x interest rate x half a year = total interest. Record this amount as a debit to Cash.
Reduce interest receivable by the amount calculated in requirement and increase interest revenue (credit) for the difference between the cash and the interest receivable adjustment. c. Provide the journal entry for sale of the bonds on December 1. Dec. 1 Hide Feedback Partially Correct Check My Work Feedback c. Calculate the proceeds: 98% x face amount of bonds sold, plus accrued interest, less commission. Debit cash for this amount. Credit investments for the face amount of bonds sold and credit interest revenue for accrued interest amount. To complete the entry, enter the difference between the cash sale amount and the face investment amount + accrued interest as a gain or loss. Hide d. Provide the adjusting entry for accrued interest of $120 on December 31, 2012. Dec. 31 Hide Feedback Incorrect Check My Work Feedback d. Debit Interest Receivable and credit Interest Revenue for the accrued interest. [Interest = remaining bond face after sale x interest rate x (60 days from Nov. 1 to Dec. 31 ÷ 360 days)
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