The Journal Entry to Record Amortization of a Bond Premium

question 109

Multiple Choice

The journal entry to record amortization of a bond premium on a held-to-maturity investment includes a:

• A)debit to Interest Revenue and a credit to Investment in Bonds.
• B)debit to Investment in Bonds and a credit to Interest Revenue.
• C)debit to Cash and a credit to Interest Revenue.
• D)debit to Cash and a credit to Investment in Bonds.

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Definitions:

Compounded Quarterly

A method of calculating interest where the interest earned is added to the principal at the end of every three-month period, subsequently increasing the amount on which future interest is computed.

Future Value

The projected value of an investment at a specified future date, taking into account factors like interest rates and time.

Invested

Funds that have been allocated to stocks, bonds, real estate, or other investment vehicles with the expectation of earning a profit.

Compounded Semiannually

Interest on an investment or loan calculated and added to the principal balance twice a year.