Purchase of Bonds Between Interest Dates
Response to the following problem:
On March 31, 2010, the Brodie Corporation acquired bonds with a par value of $400,000 for $425,800. The bonds are due December 31, 2015, carry a 12% annual interest rate, pay interest on June 30 and December 31, and are being held to maturity. The accrued interest is included in the acquisition price of the bonds. The company uses straight-line amortization.
Required
1. Prepare journal entries for Brodie to record the purchase of the bonds and the first two interest receipts.
2. If the company failed to separately record the interest at acquisition, explain the errors that would occur in the company's financial statements (no calculations are required).