Exercise 15-4 Accounting for short-term held-to-maturity securities LO P2 Prepar

Question

Exercise 15-4 Accounting for short-term held-to-maturity securities LO P2 Prepare journal entries to record the following transactions involving the short-term securities investments of Natura Co, all of which occurred during year 2017 a. On June 15, paid $184,000 cash to purchase Remedy's 90-day short-term debt securities ($184,000 principal), dated June 15, that pay 6% interest (categorized as held-to-maturity securities) b. 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.)

Explanation / Answer

Solution: Date General Journal Debit Credit Jun. 15 Short­Term Investments—HTM (Remedy) 184,000 Cash 184,000 Date General Journal Debit Credit Sep. 16 Cash 186,760 Short­Term Investments—HTM (Remedy) 184,000 Interest revenue 2,760 Notes: Interest revenue = principal x interest rate x 90/360 Interest revenue = 184,000 x 6% x 90/360 Interest revenue = 2,760 Cash = Principal + interest Cash = 184,000 + 2760 =186,760 Notes: On September 16, received is principal and 90's interest, though on sep. 16 days become 93 days, we get 90 day's interest as note was also for 90 days only. Please feel free to ask if anything about above solution in comment section of the question.

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