On April 1, 2011, Ziba Inc. purchased as a temporary investment $100,000, face amount, 10% U.S. Treasury notes; they pay interest semiannually on January 1 and July 1. The notes were purchased at 102. Which of the following entries correctly records this purchase?

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The cost of the investment is $102,000 ($100,000 face amount plus a premium of $2,000). The interest receivable is correctly recorded at $2,500, which represents half of the semiannual interest payment of $5,000 ($100,000 face amount times 10% interest rate times 6/12). The cash paid is correctly recorded at $104,500. Therefore, choice B correctly records the purchase of the Treasury notes as a trading security.