Purchase, Discount Amortization, and Sale of Bond Investment
Response to the following problem:
On November 1, 2009, the Reid Corporation acquired bonds with a face value of $700,000 for $673,618.61. The bonds carry a stated rate of interest of 10%, were purchased to yield 11%, pay interest semiannually on April 30 and October 31, were purchased to be held to maturity, and are due October 31, 2014. On November 1, 2010, in contemplation of a major acquisition, the bonds were sold for $700,000. Reid Corporation is on a fiscal year accounting period ending October 31. The company uses the effective interest method.
Required
Prepare journal entries to record the purchase of the bonds, the interest receipts on April 30, 2010, and October 31, 2010, and the sale of the bonds.