When acquiring bonds at a premium, which entry should be made to record the purchase of the bonds that will be held to maturity?

When purchasing bonds at a premium and planning to hold them to maturity, it's important to accurately reflect the total cost of the investment in the accounting records. The entry that records the purchase of the bonds must include both the face value of the bonds and any premium paid above that face value.

In this scenario, the bonds have a face value of $520,000 and were acquired for $532,500, which indicates a premium of $12,500. The total investment in the bonds is recorded under the Debt Investments account, which reflects the total amount paid for the bonds. Interest revenue will be recorded separately as it is earned over time based on the face value of the bonds, but the initial purchase is purely about the capital outlay.

The correct entry includes a debit to Debt Investments for the total amount paid ($532,500) and a credit to Cash for the same amount, indicating that cash has been reduced to acquire the bonds. The Interest Revenue may be recognized later when interest payments are received but does not affect the initial journal entry for the purchase.

Understanding how to properly categorize these amounts clarifies the nature of the transaction and ensures that the financial statements reflect the accurate value of the investment in bonds. The entry captures the prepaid amount and the