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Bond entries for Strawder Farms

17- 1A

Strawder Farms is a grower of hybird seed corn for DeKalb Genetics Corportion. It has had two exceptionally good years and has elected to invest its excess funds in bonds. The following transactions relate to bonds acquired as an investment by Strawder Farms, whose fiscal year ends on December 31.

2005

Jan 1 Purchased at par $800,000 of Lesley Corporation 10-year, 9% bonds dated January 1, 2005 directly from the issuing corporation.

July 1 Received the semiannaul interest on the Lesley bonds.

Dec 31 Accrual of interest at year end on teh Lesley bonds.

(Assume that all transactions and adjustments have been properly recorded and the number of bonds owned has not changed from December 31, 2005 to December 31, 2007 )

2008

Jan 1 Received the semiannual interest on the Lesley bonds.

Jan 1 Sold $400,000 Lesley bonds at 114. The broker deducted $7,000 for commission and fees on the sale

July 1 Received the semiannaul interest on the Lesley bonds.

Dec 31 Accrual of interest at year- end on the Lesley bonds.

Instructions

(a) Journalize the listed transactions of the years 2005 and 2008.

(b) Assume that the fair value of the bonds at December 31, 2005 was $770,000. These bonds are classified as avaiable for sale securities. Prepare the adjusting entry to record these bonds at fair value.

(c) Based on your analysis in part (b) show the balance sheet presentation of the bonds and interest receivable at December 31, 2005. Assume the investments are considered long term. Indicate where any unrealized gain or loss is reported in the financial statements.

Solution Summary

The attached Excel file shows all the journal entries with some notes of explanation to complete the problem.

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