7. On January 1, 2018, the Myrth Corporation decides to invest in Small Town bonds. The bonds mature on December 31, 2024, and pay interest of 7% on June 30 and December 31. The market rate of interest was 7% on January 1, 2018, so the $ 60 comma 000 maturity-value bonds sold for face value. Myrth Corporation intends to hold the bonds until maturity. Journalize the transactions related to Myrth Corporation's investment in Small Town bonds during 2018

Journal Entries

Date                       Accounts & Explanations        Debit ($)        Credit ($)

Jan 1 2018              Bonds receivables                    60,000

                              Cash                                                                60,000

                              (Investment in bonds)

30-Jun-18              Cash                                            2,100

                              Interest income                                               2,100

                              (6 month interest received)

31-Dec-18               Cash                                           2,100

                              Interest income                                                2,100

                              (6 month interest received)

Explanation:

Bond Value  = $60,000

Interest rate  = 7%

Interest earned half yearly, effective rate  = 7% × 6/12 = 3.5%

Half Yearly interest amount  = 60,000 x 3.5% =$2100

Journal Entries

Date                       Accounts & Explanations        Debit ($)        Credit ($)

Jan 1 2018              Bonds receivables                    60,000

                              Cash                                                                60,000

                              (Investment in bonds)

30-Jun-18              Cash                                            2,100

                              Interest income                                               2,100

                              (6 month interest received)

31-Dec-18               Cash                                           2,100

                              Interest income                                                2,100

                              (6 month interest received)

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