Question

Barnes Company purchased $58,000 of 10.0% bonds at par. The bonds mature in six years and are a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

a) debit Unrealized Gain-Equity, $2,900; credit Cash, $2,900.
b) debt Cash, $2,900; credit Long-Term Investments-HTM, $2,900.
c) debit Cash, $2,900; credit Interest Revenue, $2,900.
d) debit Cash, $5,800; credit Unrealized Gain-Equity, $5,800.
e) debit Cash, $5,800; credit Long-Term Investments-HTM, $5,800.

Answer 1

Option B,debt Cash, $2,900; credit Long-Term Investments-HTM, $2,900,is correct

Step-by-step explanation:

Semiannual interest on the bond can be computed using the below semiannual interest formula:

semiannual interest=face value*coupon rate*6/12

face value is $58000

The coupon rate is 10%

semiannual interest=$58000*10%*6/12=$2900

The receipt of $2900 semiannual interest would be debited to cash while also being credited to Long-Term investments-HTM