Question

On March 1, 2021, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $106,000 plus accrued interest. The bonds were purchased at face value. The appropriate interest rate is 6%. Interest on these bonds is payable on January 1 and July 1 of each year. Navy’s investment is accounted for as held-to-maturity. The fair value of the Treasury bonds is $107,000 at year-end.

Required:
Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments

Answer 1

Answer:

Journal entries:

Solution:

Date	Account title and explanation	Debit $	Credit $
Mar-01	Interest receivable (100000*6%*2/12)	1000
	Investment in US Treasury bonds	106000
	cash		107000
	(Entry to record purchase of U.S.Treasury bonds)
Jul-01	cash (100000*6%*6/12)	3000
	Interest revenue ($100,000*6%*4/12)		2000
	interest receivable ($100,000*6%*2/12)		1000
	(Entry to record receipt of ash for interest revenue and receivable)
Dec-31	Interest receivable ($100,000*6%*6/12)	3000
	Interest revenue		3000
	(Entry to record interest received)