On March 1, 2011, Navy Corporation used excess cash to purchase U.S. Treasury bo

Question

On March 1, 2011, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $103,000 plus accrued interest. 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.

Explanation / Answer

March 1 Interest Receivable Dr. (100000*.06*2/12) 1000 Investment in Treasury Bonds Dr. 103000 To Cash Cr. 104000 Jul 1 Cash (100000*.06*6/12) Dr. 3000 To Interest Revenue Cr. 2000 To Interest Receivable Cr. 1000 Dec 31 Interest Receivable Dr. 3000 To Interest Revenue Cr. 3000

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