Question

tb problem qu. 15 - 163 (algo) debt investments classified as held - to - maturity
on january 1 of the current year, a company paid $162,000 cash to purchase 8%, 10 - year bonds, with a par value of $162,000 and
interest paid semiannually on june 30 and december 31. the company intends to hold these bonds until they mature.
prepare the journal entries to record the bond purchase, and receipt of the semiannual interest payments on june 30 and december
31 of the current year.
view transaction list
journal entry worksheet
on january 1 of the current year, a company paid $162,000 cash to purchase
8%, 10 - year bonds, with a par value of $162,000.
note: enter debits before credits.

Explanation:

Step1: Record bond purchase

When purchasing bonds, the investment account is debited, and cash (the asset given up) is credited.
Debit: Held - to - Maturity Debt Investments $162,000
Credit: Cash $162,000

Step2: Calculate semiannual interest

The annual interest rate is \(8\%\), so the semiannual interest rate \(r=\frac{8\%}{2}=4\%\). The par value of the bonds \(P = 162000\).
The semiannual interest payment \(I=P\times r=162000\times4\% = 6480\)

Step3: Record interest receipt on June 30

When receiving interest, cash (an asset) is debited, and interest revenue (for the period) is credited.
Debit: Cash $6480
Credit: Interest Revenue $6480

Step4: Record interest receipt on December 31

Similarly, for the second - half of the year:
Debit: Cash $6480
Credit: Interest Revenue $6480

Answer:

Date	General Journal	Debit	Credit
	Cash		\(162000\)
June 30	Cash	\(6480\)
	Interest Revenue		\(6480\)
December 31	Cash	\(6480\)
	Interest Revenue		\(6480\)