Question

On March 1, 2018, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $111,000 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 $112,000 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.)

Answer 1

Solution:

Journal Entries:

Date	Particulars	Debit ($)	Credit ($)
Mar-01	Interest Receivable(111000*6%*2/12)	1,110
	Investment in US Treasury bonds	111,000
	Cash		112,110
July-01	Cash(111,000*6%*6/12)	3,330
	Interest Revenue	2,220
	Interest Receivable		1,110
Dec-31	Interest Receivable	3,330
	Interest Revenue		3,330