Thank you for visiting On January 1 2017 Dooley Company purchases 80 000 5 bonds at a price of 86 4 with a maturity date of January 1 2027. This page is designed to guide you through key points and clear explanations related to the topic at hand. We aim to make your learning experience smooth, insightful, and informative. Dive in and discover the answers you're looking for!
Answer :
The answer is : debit Cash for $2,000 and credit Interest Revenue for $2,000.00
$80,000 × 5% × 1/2 = $2,000.00
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Final answer:
Dooley Company bought bonds at a discounted rate that yield 5% interest annually. The interest is paid semi-annually, yielding Dooley Company $2,000 every six months.
Explanation:
On January 1, 2017, Dooley Company invested in $80,000, 5% bonds with a maturity date of January 1, 2027. Dooley Company bought these bonds at a price of 86.4 which is lesser than the face value. This indicates that these bonds were bought at a discount. The interest on these bonds is paid semi-annually on January 1 and July 1.
In terms of receiving interest, here's how the company’s financial entry would look like: On July 1, 2017, Dooley Company will receive interest for six months on these bonds. The interest income for Dooley will be 5% of $80,000 divided by 2 (as it's semi-annual), which results in $2,000. This will be marked as Interest Receivable in the debit column and Interest Revenue in the credit column.
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