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    Investment in debt securities at a discount

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    On May 1, 2007, Gipson Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2013. Amortization is recorded when interest is received by the straight-line method (by months and round to the nearest dollar). Assume bonds are available for sale.

    (a) Prepare the entry for May 1, 2007.

    (b) The bonds are sold on August 1, 2008 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale. Show all calculations.

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    Solution Preview

    General Journal Debit Credit
    Instructions a
    Investment in Available for Sale 422800
    Interest ...

    Solution Summary

    Journal entries are provided for Gipson Corp. after they purchased new bonds.