C is corrent. The solutions approach is used to prepare the appropriate journal entry| Investment in bonds | xxx | | | Interest receivable (or revenue) | | xxx | | Cash | | xxx |
The Investment in bonds account is debited for the market value of the bond (price paid to seller) while the interest receivable account is debited for the amount of interest accrued from the previous interest payment date to the purchase date. The cash paid is the sum of the bond’s market value plus the accrued interest. Thus, the carrying value, which is represented by the amount in the investment account, is not greater than the cash paid. The fact that the bond was purchased at a premium, by definition, means that the market value (i.e., carrying value) is greater than the face value of the bond.A is incorrect. The solutions approach is used to prepare the appropriate journal entry| Investment in bonds | xxx | | | Interest receivable (or revenue) | | xxx | | Cash | | xxx |
The Investment in bonds account is debited for the market value of the bond (price paid to seller) while the interest receivable account is debited for the amount of interest accrued from the previous interest payment date to the purchase date. The cash paid is the sum of the bond’s market value plus the accrued interest. Thus, the carrying value, which is represented by the amount in the investment account, is not greater than the cash paid. The fact that the bond was purchased at a premium, by definition, means that the market value (i.e., carrying value) is greater than the face value of the bond.B is incorrect. The solutions approach is used to prepare the appropriate journal entry| Investment in bonds | xxx | | | Interest receivable (or revenue) | | xxx | | Cash | | xxx |
The Investment in bonds account is debited for the market value of the bond (price paid to seller) while the interest receivable account is debited for the amount of interest accrued from the previous interest payment date to the purchase date. The cash paid is the sum of the bond’s market value plus the accrued interest. Thus, the carrying value, which is represented by the amount in the investment account, is not greater than the cash paid. The fact that the bond was purchased at a premium, by definition, means that the market value (i.e., carrying value) is greater than the face value of the bond.D is incorrect. The solutions approach is used to prepare the appropriate journal entry| Investment in bonds | xxx | | | Interest receivable (or revenue) | | xxx | | Cash | | xxx |
The Investment in bonds account is debited for the market value of the bond (price paid to seller) while the interest receivable account is debited for the amount of interest accrued from the previous interest payment date to the purchase date. The cash paid is the sum of the bond’s market value plus the accrued interest. Thus, the carrying value, which is represented by the amount in the investment account, is not greater than the cash paid. The fact that the bond was purchased at a premium, by definition, means that the market value (i.e., carrying value) is greater than the face value of the bond. |
