On january 1, skills company purchased as a short-term investment a $1,000, 6% bondfor $1,000. the bond pays interest on january 1. the bond is sold on july 1 for $1,200plus accrued interest. interest has not been accrued since the last interest payment date. what is the entry to record the cash proceeds at the time the bond is sold? a. ,200 debt investments ,200b. ,230 debt ,000 gain on sale of debt interest . ,230 debt ,200 interest . ,200 debt ,000 gain on sale of debt

Option (B) is correct.

Explanation:

Interest accrued for 6 months (January 1 to July 1):

= $1,000 × 6% × (6 ÷ 12)

= $30

This shall be credited to interest revenue as this is the income of the investor.

Sale value of investment:

= Bond selling price on July 1 + Interest accrued for 6 months

= $1,200 + $30

= $1,230

Gain on sale of investment:

= (Selling price - Purchase price) - Accrued interest

= ($1,230 - $1,000) - $30

= $200

Therefore, the Journal entry for this transaction is as follows:

Cash A/c                 Dr. $1,230

To debt investments                  $1,000

To Gain on sale of investment  $200

To Interest revenue                   $30

(To record the cash proceeds at the time the bond is sold)

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