The following bond investment transactions were completed during 2014 by Starks Company:

The following bond investment transactions were completed during 2014 by Starks
Company: Jan. 31. Purchased 75, $1,000 government bonds at 100 plus 30 days’ accrued interest. The bonds pay 6% annual interest on July 1 and January 1.


July 1. Received semiannual interest on bond investment.
Aug. 29. Sold 35, $1,000 bonds at 98 plus $350 accrued interest.

a. Journalize the entries for these transactions.
b. Provide the December 31, 2014, adjusting journal entry for semiannual interest earned on the bonds.


Answer:

2014
a.
 Jan. 31 Investments—Government Bonds 75,000
Interest Receivable* 375
Cash 75,375
* $75,000 × 6% × 30/360
July 1 Cash* 2,250
Interest Receivable 375
Interest Revenue 1,875
* $75,000 × 6% × 1/2
Aug. 29 Cash* 34,650
Loss on Sale of Investments 700
Interest Revenue 350
Investments—Government Bonds 35,000
* Bond sale ($35,000 × 98%)………………………………… $34,300
Accrued interest…………………………………………… 350
Total proceeds from sale……………………………………$34,650
2014
b. Dec. 31 Interest Receivable 1,200
Interest Revenue 1,200
Accrued interest, $40,000 ×
6% × 1/2.