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

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.