Question

The journal entry required to record the purchase of $20,000 of U.S. Treasury bonds at their...

The journal entry required to record the purchase of $20,000 of U.S. Treasury bonds at their face amount on May 17 plus accrued interest for 45 days would include a

a. debit to Interest Receivable.

b. debit to Cash.

c. credit to Investments.

d. None of these choices are correct.

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Answer #1

a.debit to Interest receivable

Treasury bonds purchased after their last coupon interest payment will include interest amount for the period between last coupon payment date and date of Treasury bond purchased.

When any investor purchases such bond they have to pay an amount equal to face value of bond plus accrued interest for the period since last interest payment.

At the next interest payment date investor receives interest for the entire period from last interest payment.

So when investor buys bond with accrued interest they debit both bond investment and interest accrued and credit cash.

So,journal entry on may 15 will include,

Debit to Interest receivable

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