UMUC ACCT301 homework 5

| September 2, 2016

Question
Petersen Stores invested in $100,000 of face amount of 4-year bonds issued by Erik Food Supply Company on January 1, 20X1. The bonds were purchased at 98, and bear interest at a stated rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Petersen would record on each interest date.

(c) Prepare the journal entry that Petersen would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?

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