On August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest.

Required:

Present entries to record the following transactions:

Bee Company:

(a) Purchase of bonds on August 1, Year 1.

(b) Receipt of first semiannual interest amount on December 31, Year 1.

(c)
The sale of the bonds on March 1, Year 2.

CHART OF ACCOUNTSAnt CompanyGeneral Ledger

ASSETS

110 Cash

120 Accounts Receivable

121 Allowance for Doubtful Accounts

131 Notes Receivable

132 Interest Receivable

141 Merchandise Inventory

151 Supplies

152 Prepaid Insurance

161 Investments-Ant Company Bonds

165 Valuation Allowance for Trading Investments

166 Valuation Allowance for Available-for-Sale Investments

181 Land

191 Equipment

192 Accumulated Depreciation-Equipment

LIABILITIES

210 Accounts Payable

221 Notes Payable

231 Interest Payable

241 Salaries Payable

EQUITY

311 Common Stock

312 Paid-In Capital in Excess of Par-Common Stock

321 Preferred Stock

322 Paid-In Capital in Excess of Par-Preferred Stock

331 Treasury Stock

332 Paid-In Capital from Sale of Treasury Stock

340 Retained Earnings

351 Cash Dividends

352 Unrealized Gain (Loss) on Available-for-Sale Investments

353 Stock Dividends

390 Income Summary

REVENUE

410 Sales

611 Interest Revenue

612 Dividend Revenue

631 Gain on Sale of Investments

641 Unrealized Gain on Trading Investments

EXPENSES

511 Cost of Merchandise Sold

512 Bad Debt Expense

522 Salaries Expense

531 Advertising Expense

532 Rent Expense

533 Insurance Expense

534 Supplies Expense

561 Depreciation Expense-Equipment

590 Miscellaneous Expense

710 Interest Expense

731 Loss on Sale of Investments

741 Unrealized Loss on Trading Investments

Question

On August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest.

Required:

Present entries to record the following transactions:

Bee Company:

(a)

Purchase of bonds on August 1, Year 1.

(b)

Receipt of first semiannual interest amount on December 31, Year 1.

(c)

The sale of the bonds on March 1, Year 2.

CHART OF ACCOUNTSAnt CompanyGeneral Ledger

	ASSETS
110	Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
151	Supplies
152	Prepaid Insurance
161	Investments-Ant Company Bonds
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Equipment
192	Accumulated Depreciation-Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
351	Cash Dividends
352	Unrealized Gain (Loss) on Available-for-Sale Investments
353	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
522	Salaries Expense
531	Advertising Expense
532	Rent Expense
533	Insurance Expense
534	Supplies Expense
561	Depreciation Expense-Equipment
590	Miscellaneous Expense
710	Interest Expense
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

Apr. 1	Purchased $400,000 of Daytona Beach 4.5% bonds at 100 plus accrued interest of $4,500.
July 1	Received the first semiannual interest.
Sept. 1	Sold $250,000 of the bonds at 97, plus accrued interest of $1,875.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

Year 1
Apr.	1.	Purchased $100,000 of Welch Co. 6%, 15-year bonds at their face amount plus accrued interest of $500. The bonds pay interest semiannually on March 1 and September 1.
June	1.	Purchased $210,000 of Bailey 4%, 10-year bonds at their face amount plus accrued interest of $700. The bonds pay interest semiannually on May 1 and November 1.
Sept.	1.	Received semiannual interest on the Welch Co. bonds.
	30.	Sold $40,000 of Welch Co. bonds at 97 plus accrued interest of $200.
Nov.	1.	Received semiannual interest on the Bailey bonds.
Dec.	31	Accrued $1,200 interest on the Welch Co. bonds.
	31	Accrued $1,400 interest on the Bailey bonds.

Year 2
Mar.	1	Received semiannual interest on the Welch Co. bonds.
May	1	Received semiannual interest on the Bailey bonds.

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1.	Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
2.	If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Welch Co. Bonds
162	Investments-Bailey Bonds
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment