Chapter 9
Investments
459
AP-4B (
1
2
)
Jimmy Company, a public company, purchases a 120-day, $5,000,000 Canadian Government
T-bill on April 1, 2016, when the market interest rate is 6%. Jimmy pays $4,900,000 for the T-bill.
The company plans to sell this T-bill at any time before the maturity date, should the market
situation turn favourable. Assume that Jimmy Company has a year-end date of April 30.
Assume Jimmy Company sold the 120-day, $5,000,000 T-bill for $4,940,000 on May 1, 2016.
Prepare journal entries for the purchase, accruals of interest at the year-end and sale of the
T-bill.
Date
Account Title and Explanation
Debit
Credit
Analysis
Do you think Jimmy Company made the right decision to sell this T-bill on May 1, 2016?
Explain.
