Question

Prepare journal entries to record the following transactions involving the short-term securities investments of Natura Co., all of which occurred during year 2017. On June 15, paid $1,000,000 cash to purchase Remedy’s 90-day short-term debt securities ($1,000,000 principal), dated June 15, that pay 10% interest (categorized as held-to-maturity securities). On September 16, received a check from Remedy in payment of the principal and 90 days’ interest on the debt securities purchased in transaction a. (Use 360 days in a year. Do not round your intermediate calculations.)

Answer 1

Answer:

short-term securities 1,000,000 debit

                  cash                            1,000,000  credit

---to reocrd purchase---

cash              1,025,000 debit

         interest revenue            25,000  credit

         short-term securities 1,000,000  credit

-- to record collection---

Explanation:

calculus of interest:

principal x rate x time = interest

Is important to notice we must express rate and time in the same metric, so time will be express a a portion of the year instead of 90 days:

1,000,000 x 10% x 90/360 = 25,000