Question

If Clark Company purchases for cash $80,000 of Target Company 10% bonds at 100 plus accrued interest of $640, the journal entry will include a

a. credit to Interest Receivable for $640.
b. credit to Investments in Target Company Bonds for $80,000.
c. credit to Cash for $80,640.
d. debit to Cash for $80,640.

Answer 1

C) credit to Cash for $80,640.

Step-by-step explanation:

The complete journal entry should be:

Dr Investments in Bonds (Target Company) account 80,000

Dr Interest Receivable account 640

Cr Cash account 80,640

Since you are purchasing the bonds at 100, it means that your are paying face value = $80,000. Since the bond purchase includes accrued interest, you must also pay for it = $640.