Assume that an investment in bonds of $10,000 made at a premium of $200 plus accrued interest is purchased in the amount of $100.

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Step 1: The entry to record the purchase is as follows:
Investments                                                                                    $10,000
Unamortized premium on investments    200
Accrued interest receivable                                                              100
Cash    $10,300
To record purchase of bonds at a premium plus accrued interest

Step 2: On the interest payment date, the following entry is made to record collection of interest:
Cash                                                                                                     $900
Revenue from earnings, interest    $800
Accrued interest receivable                                                                        100

To record collection of interest on investments
Budgetary accounts for each bond issue facilitate periodic comparisons of actual earnings with required earnings and periodic comparisons of actual revenue from taxation or other sources with required taxation or revenue from other sources. These comparisons throughout the outstanding life of each bond issue serve as effective debt management techniques for adjusting the amount of taxes required to retire each bond issue.

Step 3: Assume that an investment of $12,000 is made on which a discount of $240 is applicable. The following entry records the investment:
Investments    $12,000
Unamortized discount on investment                                                   $240
Cash    11,760
To record investments purchased at a discount

Question 14.6: Assume that an investment in bonds of $10,000 made at a prem...

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