Transactions for Bond $($Held$-$to$-$Maturity$)$ Investments

Rekya Mart Inc. is a general merchandise retail company that began operations on January $1,20$Y$5.$ The following are bond $($held$-$to$-$maturity$)$ transactions by Rekya Mart Inc., which has a fiscal year ending on December $31$:

$20$Y$5$

Apr. $1$ Purchased $$90,000$ of Smoke Bay $6\%,10-$year bonds at their face amount plus accrued interest of $$900.$ The bonds pay interest semiannually on February $1$ and August $1.$

May $16$ Purchased $$42,000$ of Geotherma Co$.4\%,12-$year bonds at their face amount plus accrued interest of $$70.$ The bonds pay interest semiannually on May $1$ and November $1.$

Aug. $1$ Received semiannual interest on the Smoke Bay bonds.

Sept. $1$ Sold $$12,000$ of Smoke Bay bonds at $101$ plus accrued interest of $$60.$

Nov. $1$ Received semiannual interest on the Geotherma Co$.$ bonds.

Dec. $31$ Accrued interest on the Smoke Bay bonds.

Dec. $31$ Accrued interest on the Geotherma Co$.$ bonds.

$20$Y$6$

Feb. $1$ Received semiannual interest on the Smoke Bay bonds.

May $1$ Received semiannual interest on the Geotherma Co$.$ bonds.

Required:

$1.$ Journalize the entries to record these transactions. If an amount box does not require an entry, leave it blank. Do not round your intermediate calculations and round final answers to the nearest dollar.

Date Description Debit Credit

$20$Y$5$

Apr. $1$

Investments$-$Smoke Bay Bonds

fill in the blank $2$

$90,000$

fill in the blank $3$

Interest Receivable

fill in the blank $5$

$900$

fill in the blank $6$

Cash

fill in the blank $8$

fill in the blank $9$

$90,900$

May $16$

Investments$-$Geotherma Co$.$ Bonds

fill in the blank $11$

$42,000$

fill in the blank $12$

Interest Receivable

fill in the blank $14$

$70$

fill in the blank $15$

Cash

fill in the blank $17$

fill in the blank $18$

$42,070$

Aug. $1$

Cash

fill in the blank $20$

$2,700$

fill in the blank $21$

Interest Receivable

fill in the blank $23$

fill in the blank $24$

$900$

Interest Revenue

fill in the blank $26$

fill in the blank $27$

$1,800$

Sept. $1$

Cash

fill in the blank $29$

$12,180$

fill in the blank $30$

Interest Revenue

fill in the blank $32$

fill in the blank $33$

$60$

Gain on Sale of Investment

fill in the blank $35$

fill in the blank $36$

$120$

Investments$-$Smoke Bay Bonds

fill in the blank $38$

fill in the blank $39$

$12,000$

Nov. $1$

Cash

fill in the blank $41$

$840$

fill in the blank $42$

Interest Receivable

fill in the blank $44$

fill in the blank $45$

$70$

Interest Revenue

fill in the blank $47$

fill in the blank $48$

$770$

Dec. $31-$Smoke Bay

Interest Receivable

fill in the blank $50$

$1,800$

fill in the blank $51$

Interest Revenue

fill in the blank $53$

fill in the blank $54$

$1,800$

Dec. $31-$Geotherma Co$.$

Interest Receivable

fill in the blank $56$

$982$

fill in the blank $57$

Interest Revenue

fill in the blank $59$

fill in the blank $60$

$982$

$20$Y$6$

Feb. $1$

fill in the blank $62$

fill in the blank $63$

fill in the blank $65$

fill in the blank $66$

fill in the blank $68$

fill in the blank $69$

May $1$

fill in the blank $71$

fill in the blank $72$

fill in the blank $74$

fill in the blank $75$

fill in the blank $77$

fill in the blank $78$

$2.$ If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

If the bonds are classified as available$-$for$-$sale securities$,$ then the portfolio of bonds would need to be adjusted to

$.$ This would be recorded by using a valuation allowance account and

account.

Feedback Area

Feedback

$1.$

Apr. $1$ and May $16,20$Y$5$: Record the investment at face value. Interest that is receivable on the date of purchase must be recorded as well.

Aug. $1$ and Nov. $1,20$Y$5$: Record the interest revenue as earned. Bond principal x interest rate x time $=$ Total interest.

Sept. $1,20$Y$5$: Calculate the proceeds: First compute the $\%$ x face amount of bonds sold. Next, adjust the amount for any accrued interest. To complete the entry, determine any gain or loss on the transaction.

Dec. $31,20$Y$5$: Remember to accrue the interest only on the remaining Smoke Bay bonds after the sale. Use the same formula to compute the interest adjusted for the appropriate time period.

Feb. $1,20$Y$6$: Calculate remaining bond principal after Sep. $1$ sale. Remember remove any accrued interest from the books.

May $1,20$Y$6$: Use the same formula to compute the interest adjusted for the appropriate time period. Remember to remove any accrued interest from the books.