On April 1, Alliance Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000. On June 30, Alliance received its first semiannual interest. On February 1, Alliance sold $40,000 of the bonds at 103 plus accrued interest. The journal entry Alliance will record on April 1 for the purchase of the bonds will include a

A) credit to Interest Payable for $2,000
B) debit to Investments-Tetter Company Bonds for $52,000
C) debit to Cash for $50,000
D) debit to Investments-Tetter Company Bonds for $50,000

Question

Akash Ramesh · Accepted Answer

Final Answer : D, Explanation :  When Alliance Company purchased the Tetter Company bonds, they paid $50,000 plus accrued interest of $2,000, for a total of $52,000. Therefore, the journal entry will include a debit to Investments-Tetter Company Bonds for $50,000 (the cost of the bonds) and a credit to Cash for $50,000 (the amount paid in cash). The accrued interest will be recorded separately with a credit to Interest Payable for $2,000.

Definitions

Learning Objectives

Learning Objectives

Related questions