On purchase of held-to-maturity securities, which journal entry is correct?

The correct journal entry when purchasing held-to-maturity securities involves recognizing the asset acquired (which is categorized as Debt Investments) and the outflow of cash that is used to pay for those securities.

When a company purchases held-to-maturity securities, it records the investment at cost, which includes the price paid for the securities. This transaction is documented by debiting the Debt Investments account. The Debit signifies an increase in assets because investments are considered to be assets on the balance sheet.

At the same time, the company needs to account for the cash that has been spent to acquire these securities. This is recorded through a credit entry to the Cash account, reflecting a decrease in assets since cash is being used to make the purchase.

The other choices do not accurately reflect this transaction. For example, Dr Cash, Cr Debt Investments would imply that cash is being received rather than paid out. Dr Expense, Cr Debt Investments suggests an expense is being recognized, which is not applicable to the acquisition of investments, and Dr Debt Investments, Cr Equity incorrectly indicates equity accounts are involved in the transaction.

Thus, the correct entry, which indicates the increase in the investment account and the decrease in cash due to the purchase of held-to-maturity securities, is