Question

Accounting for debt investments

Griffin purchased a bond on January 1, 2018, for \(140,000. The bond has a face value of \)140,000 and matures in 20 years. The bond pays interest on June 30 and December 31 at a 3% annual rate. Griffin plans on holding the investment until maturity.

Requirements

1. Journalize the 2018 transactions related to Griffin’s bond investment. Explanations are not required.

Short answer

Both sides of the journal totals$144,200.

Step-by-step solution

Definition of Maturity Date

A maturity date can be defined as the specific date on which the borrower is liable to repay the principal amount of the loan and any interest due.

Journal Entry for Transaction

Date	Accounts and Explanation	Debit $	Credit $
1 Jan 2018	Held to maturity – debt investment	$140,000
	Cash		$140,000
30 June 2018	Cash	$2,100
	Interest revenue		$2,100
31 Dec 2018	Cash	$2,100
	Interest revenue		$2,100
		$144,200	$144,200

Working note:

Calculation of Interest Revenue:

$$\begin{gathered} Interestrevenue=Facevalue\times Interestrate\times \frac{6}{12} \\ =\$140,000\times 3\%\times \frac{6}{12} \\ =\$2,100 \end{gathered}$$