7. On January 1, 2018 , the Myrth Corporation decides to invest in Small Town bonds. The bonds mature on December 31, 2024 , and pay interest of 7 % on June 30 and December 31. The market rate of interest was 7 % on January 1, 2018 , so the $ 60 comma 000 maturity-value bonds sold for face value. Myrth Corporation intends to hold the bonds until maturity. Journalize the transactions related to Myrth Corporation's investment in Small Town bonds during 2018

Journal Entries

Date Accounts & Explanations Debit ($) Credit ($)

Jan 1 2018 Bonds receivables 60,000

Cash 60,000

(Investment in bonds)

30-Jun-18 Cash 2,100

Interest income 2,100

(6 month interest received)

31-Dec-18 Cash 2,100

Interest income 2,100

(6 month interest received)

Explanation:

Bond Value = $60,000

Interest rate = 7%

Interest earned half yearly, effective rate = 7% * 6/12 = 3.5%

Half Yearly interest amount = 60,000 x 3.5% = $2100

Journal Entries

Date Accounts & Explanations Debit ($) Credit ($)

Jan 1 2018 Bonds receivables 60,000

Cash 60,000

(Investment in bonds)

30-Jun-18 Cash 2,100

Interest income 2,100

(6 month interest received)

31-Dec-18 Cash 2,100

Interest income 2,100

(6 month interest received)