N.Y. Comp. Codes R. & Regs. Tit. 9 §§ 1645-2.7

Current through Register Vol. 46, No. 45, November 2, 2024

Section 1645-2.7 - Investments in U. S. series G and series K bonds

(a) Investments in U. S. series G and K bonds differ from series F and series J bonds in that the G and K bonds are issued at par whereas the F and J bonds are issued at a discount. Series G bonds bear interest at the rate of 2.50 per cent on the par value, payable semiannually by check to the registered owner. Series G bonds were issued until April 1952, at which time the U. S. Treasury replaced them by series K bonds. Series K bonds bear interest at the rate of 2.76 per cent on the par value, payable semiannually by check to the registered owner. Series G and K bonds resemble series F and J bonds in that they are registered, are not bought and sold in the open market, but are issued and redeemed directly by the U. S. government through authorized agencies, and may be redeemed prior to maturity, in accordance with a table of redemption values printed on the bond. The redemption values decrease from par in the first five years from issue date and increase thereafter until they reach par again when the bonds mature. The changes in redemption values are not continuous, but occur at the end of each six-month period beginning with the date of issue. The date of issue for series F, G, J and series K bonds is always the first day of the month in which the bonds were purchased and the date of maturity is 12 years from the date of issue.

(b) When the bonds are purchased, the appropriate investment account should be charged with the purchase price, which in all cases will be par, or face, value. At the end of each six-month period, counting from the date of issue, account 1144, Accrued Interest Receivable on Investments, is charged with the nominal amount of the interest, that is, at the rate of two and one-half per cent per annum for series G and 2.76 per cent for series K on the par, or face, value of the bonds. During the period when the redemption value of the bonds is decreasing, the applicable investment account is credited with the decrease in redemption value and the difference between the nominal amount of the interest and the decrease in the redemption value is credited to the appropriate interest earned account. Six months from date of issue a $1,000 series G bond has a redemption value of $988. For bonds issued May 1, 1947 and purchased out of reserve funds, the journal entry on October 31, 1947 would be:

Entry (4):

Debit: Account 1144, Accrued Interest Receivable on Investments	$12.50
Credit: Account 1176, Reserve Fund Investments	$12.00
Credit: Account 2511, Interest Earned on Reserve Fund Investments	$.50

Explanation::

To record interest accrued on U. S. series G bond, issued May 1, 1947, for the six months ending October 31, 1947.

(c) During the period when the redemption value of the bond is increasing, the appropriate investment account is charged with the increase in the redemption value the nominal interest is charged to account 1144, Accrued Interest Receivable on Investments, and the appropriate interest earned account is credited with the sum of the nominal interest and the increase in the redemption value. For example, a $1,000 par value U. S. series G bond has a redemption value of $961 at the end of seven years from date of issue, and of $964, at the end of seven and one-half years. The journal entry recording the interest accrued at the end of seven and one-half years, for a reserve fund investment would be:

Entry (5):

Debit: Account 1144, Accrued Interest Receivable on Investments	$12.50
Debit: Account 1176, Reserve Fund Investments	$3.00
Credit: Account 2511, Interest Earned on Reserve Fund Investments	$15.50

Explanation::

To record interest accrued on U. S. series G bond issued May 1, 1947, for the six months ending October 31, 1954.

(d) The semiannual payments of interest, when received, are credited to account 1144, Accrued Interest Receivable on Investments, and the proceeds, when the bonds are redeemed, or mature are credited to the appropriate investment account through the cash receipts register. Series G and K bonds, like series F and J are suitable only for long term investments, such as of replacement reserve funds. The amount of series F, G, J or series K bonds or the combined aggregate amount of both series that may be issued during any one calendar year to any one owner is limited to $100,000 (issue price). Inasmuch as the book value of investments in series F, G, J and K bonds will always be the same as the redemption value, no gain or loss will arise on redemption of the bonds prior to maturity.

N.Y. Comp. Codes R. & Regs. Tit. 9 §§ 1645-2.7