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.

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 1,2013Cash 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. 31,2013Interest receivable A/c  Dr. 3,000

                      To interest revenue A/c3,000  

answer founder's agreement;