Question:
On September 1, Rockwell Co. issued at a premium $2,000,000 of 20-year, 15% bonds, dated August 1, for $2,240,000 and accrued interest of $25,000, (total cash paid $2,265,000). The bonds were purchased by IBM Corporation. Interest is payable semiannually on February 1 and August 1.
Present the entries to record the following transactions for the current year on the books of the investor-IBM Corporation:
A. Purchase of the bond investment by IBM.
B. On 12/31/12 there is five months accrued interest. Record the adjusting entry for 5 months @$25,000 per month. Remember the cash will be received in the next year on Feb. 1st.
C. Record the adjusting entry for the $5,000 amortization of bond premium for the year on December 31 using the straight-line method.
D. On Feb. 1, 2013, IBM receives cash of $150,000 for the six months interest. Remember on 12/31 you have accrued interest already recorded of five months.