Previously Atomic City had issued bonds with a face value of $10 million to construct a new city hall. Because the money will not be needed for several months, the city invested the bond proceeds in U.S. Government securities. Assume that the city maintains its books and records in a manner that facilitates the preparation of fund financial statements. What is the appropriate entry when the city receives interest on the investments?
A) Debit Cash; Credit Revenue.
B) Debit Cash; Credit Other financing sources.
C) Debit Cash; Credit Deferred inflow of resources.
D) No entry required.

Question

Previously Atomic City had issued bonds with a face value of $10 million to construct a new city hall. Because the money will not be needed for several months, the city invested the bond proceeds in U.S. Government securities. Assume that the city maintains its books and records in a manner that facilitates the preparation of fund financial statements. What is the appropriate entry when the city receives interest on the investments? 
A) Debit Cash; Credit Revenue.
B) Debit Cash; Credit Other financing sources.
C) Debit Cash; Credit Deferred inflow of resources.
D) No entry required.

Quizplus · Accepted Answer

Interest earned on investments is considered revenue, so the correct entry to record the receipt of interest is to debit Cash (to increase the asset) and credit Revenue (to recognize the income).

Previously Atomic City Had Issued Bonds with a Face Value