QUESTION 4

(Single Security available-for-sale): Graffeo Corporation purchases $100,000, 12 percent, five-year bonds on January 1, 2013, with interest payable on July 1 and January 1. The bonds sell for $110,000, which results in a bond premium of $10,000 and an effective interest rate of 8 percent.

Which of the following statement is correct?

	A.	The entry to record interest revenue on July 1, 2013, is as follows. Cash 6,000 Debt Investments 1,600 Interest Revenue 4,400
	B.	The entry to record interest revenue on July 1, 2013, is as follows. Cash 6,000 Debt Investments 1,600 Interest Receivable 4,400
	C.	The entry to record interest revenue on July 1, 2013, is as follows. Cash 12,000 Debt Investments 3,200 Interest Revenue 8,800
	D.	Graffeo records the purchase of the bonds on January 1, 2013, as follows. Cash 110,000 Debt Investments 110,000