1. On March 1, 2013, Navy Corporation used excess cash to purchase U. S. Treasury bonds for $103,000 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 $104,000 at year-end. Required: Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments. Show calculations, rounded to the nearest dollar.

Question

Nathanael Garrison

Business

24 August, 10:24

1. On March 1, 2013, Navy Corporation used excess cash to purchase U. S. Treasury bonds for $103,000 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 $104,000 at year-end. Required: Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments. Show calculations, rounded to the nearest dollar.

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Answers (1)

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George Petty · Answer 1

Answer and Explanation:

Bonds purchased at face value = ($104,000 - $103,000) : 6% * 12:2

=$1,000 : 0.06 * 6

=$100,000

Journal Entry

March 1,2013 Interest receivable Dr. A/c 1000

($100,000 * 6% * 2:12)

Investment in treasury bonds Dr A/c 103,000

To cash A/c $104,000

July 1,2013 Cash A/c Dr. 3,000

($100,000 * 6% * 6:12)

To interest revenue A/c 2,000

To interest receivable A/c 1,000

Dec. 31,2013 Interest receivable A/c Dr. 3,000

To interest revenue A/c 3,000