Barnes Company purchased $50,000 of 8% 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 Cash,$4,000; credit Debt Investments−HTM,$4,000.
B)debt Cash,$2,000; credit Debt Investments−HTM,$2,000.
C)debit Cash,$2,000; credit Interest Revenue,$2,000.
D)debit Unrealized Gain-Equity,$2,000; credit Cash,$2,000.
E)debit Cash,$4,000; credit Unrealized Gain-Equity,$4,000.

Question

Quizplus · Accepted Answer

When recording receipt of semiannual interest payments on a held-to-maturity security, we debit Cash and credit Interest Revenue. Both choices A and B are incorrect as they erroneously credit Debt Investments−HTM instead of Interest Revenue. Choice D involves unrealized gains, which are not applicable to held-to-maturity securities. Choice E involves unrealized gains again and also errs by debiting Cash instead of crediting it. Therefore, the correct entry is choice C, debit Cash for the amount of the interest payment received and credit Interest Revenue.

Barnes Company Purchased $50,000 of 8% Bonds at Par