Question

On March 1, 2018, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $95,000 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 $96,000 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

Journal Entries
March 1
Interest Receivable                 1,000
(100,000 x .06 x 2/12)
Investment in Treasury Bonds 95,000
                       To Cash                                                     96,000
July 1
Cash                                                   3,000
(100,000 x .06 x 6/12)
                                To Interest Revenue                     2,000
                              To Interest Receivable                    1,000
Dec 31
Interest receivable                  3,000
                                    To Interest Revenue                     3,000

(Assuming face value is 100000 )