Three Stars Chemical Company has accumulated funds in its Depreciation Fund Account. These funds would be required for replacement of machinery after few years. Therefore, the company has decided to invest these funds in 12% Bonds have maturity of 5 ye

Certainly! Let's go through the accounting entries for the Three Stars Chemical Company step by step, starting with the purchase of bonds and then recording the accrued interest and collection of interest. ### 1) Record the Purchase of Bonds in the Books of Accounts as on 1 April, 2020 On the purchase of bonds, the company will record the investment in bonds for the amount of Rs. 1,000,000. **Journal Entry on 1 April 2020:** | Date | Account Title | Debit (Rs.) | Credit (Rs.) | |----------------|------------------------------------|--------------|---------------| | 01-Apr-2020 | Investment in Bonds | 1,000,000 | | | | Cash | | 1,000,000 | **Narration:** To record the purchase of 12% bonds at Rs. 1,000,000. --- ### 2) Record Accrued Interest on Bonds in the Books of Accounts as on 30 June, 2020 The interest is payable semiannually. The total annual interest on Rs. 1,000,000 at 12% interest would be Rs. 120,000. Therefore, the semiannual interest payment would be Rs. 60,000 (Rs. 120,000 / 2) due on 30 June 2020. **Journal Entry on 30 June 2020:** | Date | Account Title | Debit (Rs.) | Credit (Rs.) | |----------------|------------------------------------|--------------|---------------| | 30-Jun-2020 | Interest Receivable | 60,000 | | | | Interest Revenue | | 60,000 | **Narration:** To record accrued interest on investments as at 30 June 2020. --- ### 3) Record the Collection of Interest on Bonds as on 30 September 2020 and as on 31 March 2021 **a) Collection of Interest on 30 September 2020** On 30 September 2020, the first interest payment will be received. **Journal Entry on 30 September 2020:** | Date | Account Title | Debit (Rs.) | Credit (Rs.) | |----------------|------------------------------------|--------------|---------------| | 30-Sep-2020 | Cash | 60,000 | | | | Interest Receivable | | 60,000 | **Narration:** To record the collection of interest received on 30 September 2020. --- **b) Collection of Interest on 31 March 2021** On 31 March 2021, the second interest payment will also be received. **Journal Entry on 31 March 2021:** | Date | Account Title | Debit (Rs.) | Credit (Rs.) | |----------------|------------------------------------|--------------|---------------| | 31-Mar-2021 | Cash | 60,000 | | | | Interest Revenue | | 60,000 | **Narration:** To record the collection of interest received on 31 March 2021. --- ### Summary of Transactions: 1. **Purchase of Bonds:** Recorded as an investment. 2. **Accrued Interest:** Interest that has been earned but not yet received is recorded as receivable. 3. **Interest Collection:** Each quarterly collection reduces receivables and increases cash. This summarizes the accounting transactions related to the bonds for Three Stars Chemical Company. Please let me know if you need further assistance!