Question

Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include:_____________
a. Interest Receivable debit $2,000.
b. Cash credit $200,000.
c. Interest Revenue credit $2,000.
d. Investment in Bonds debit $202,000

Answer 1

Answer:

The correct answer is A

Explanation:

The journal entry for on recording or posting the purchase of the bonds will be as follows:

March 1

Interest Receivable A/c...............................Dr   $2,000

           Cash A/c...................................................Cr    $2,000

On March 1, the corporation bought bonds worth $200,000 and in addition to the accrued interest of $2,000. So, recording this will debit the interest receivable account against the cash account as the cash is going out of the business or corporation.