Question

On March 1, 2018, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $98,000 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 $99,000 at year-end.

Required:
Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the purchase of U.S Treasury bonds for cash and accured interest.

Record the cash received for interest revenue and receivable.

Record the entry for interest received.

Answer 1

	Journal Entries			Amount In US$
Mar-01
	Investment in US Treasury bonds			98000
	Interest Receivable on US Tresury bonds			1480
	To Cash A/c				99480
	(Accrued Interest Calcualtion = $1480 = 98000 * 6%/4)
01-Jul	Cash Account			2940
	To Interest revenue				1480
	to Accrued Interest on US Tresury Bonds				1480
	(Interest Calcualtion = $2940 = 98000 * 6%/2)
31-Dec	Interest Receivable on US Tresury bonds			2940
	To Interest Revenue				2940
31-Dec	No Entry for increase in market price of bonds