Question

Watt Co. purchased 300,000 of bonds for315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes?

1) a debit to Held-to-Maturity Securities at $300,000.
2) a credit to Premium on Investments of $15,000.
3) a debit to Held-to-Maturity Securities at $315,000.
4) none of these.

Answer 1

The correct entry for the purchase of bonds by Watt Co. is a debit to Held-to-Maturity Securities for $315,000.

Step-by-step explanation:

The correct journal entry to record the purchase of the bonds by Watt Co. if it intends to hold the securities to maturity includes a debit to Held-to-Maturity Securities for $315,000 and a credit to Cash for $315,000. This is because when a company purchases bonds at a premium (i.e., for more than their face value), the entire purchase price is recorded in the Held-to-Maturity Securities account. Option 3, which states 'a debit to Held-to-Maturity Securities at $315,000,' is the correct action to take for this particular scenario. There's no need to separate the premium; it will be amortized over the life of the bonds.