Kendall Corp.purchased at par value,$75,000 of Shrem Company's 8% bonds that mature in three-years.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.When the bonds mature,Kendall should prepare the following journal entry (assume the semiannual interest was separately recorded):
A)debit Long-Term Investments-HTM,$75,000; credit Cash,$75,000.
B)debit Cash,$6,000; credit,Unrealized Gain-Equity,$6,000.
C)debit Cash,$75,000; credit Debt Investments-HTM,$75,000.
D)debit Unrealized Gain-Equity,$6,000; credit Cash,$6,000.
E)debit Cash,$75,000; credit Long-Term Investments-Trading,$75,000.

Question

Quizplus · Accepted Answer

When the bonds mature, the investment in the bonds should be removed from the books and the cash received from the bonds should be recorded. Therefore, the journal entry should include a debit to Cash for the amount received ($75,000) and a credit to the investment account for the same amount ($75,000). The correct account to credit is Debt Investments-HTM (held-to-maturity) as Kendall intends to hold the bonds until they mature. Unrealized gains and losses apply to trading securities, not held-to-maturity securities, so options B and D are incorrect. Option A is incorrect because Long-Term Investments-HTM should not be debited; it is not affected by the maturity of the bonds. Option E is incorrect because the bonds were not classified as trading securities.