N.Y. Comp. Codes R. & Regs. Tit. 9 §§ 1645-2.6
U.S. series F bonds were issued on a discount basis of 74 per cent of their maturity value until April 1952, at which time the U. S. Treasury replaced them by series J bonds, which are issued on a discount basis of 72 per cent of their maturity value. Both are basically the same type of security and the description of the investment features and accounting treatment which follows is applicable to each.
No interest, as such, is paid on the bonds, but the redemption values of the bonds increase at the end of the first year from the date of issue and at the end of each successive semiannual period thereafter until, at maturity, the bond is redeemable at face value. The bonds are registered and cannot be bought and sold on the open market but are directly purchased from and redeemed by the issuer, the U. S. government, through any Federal reserve bank or other authorized agencies. No commission is payable on either the purchase or redemption of these bonds. The bonds may be redeemed prior to maturity at fixed redemption values, in accordance with a table of redemption values appearing on each bond. Because of the sharp reduction in yield resulting from redemption prior to maturity, these bonds are suitable only for long-term investments, such as of replacement reserve funds.
The bonds are charged, when purchased, to the appropriate investment account in the 1170 group of asset accounts. However, the procedure for recording the interest earned, which is reflected by an increase in the redemption value, differs from that of other investments in two respects. First, the increase in redemption value is charged to the applicable investment account so that the book value of the investment agrees with the redemption value, rather than to an accrued interest receivable account. The credit for the increase in redemption value is to the applicable interest earned account. Second, the increase in redemption values is not continuous, but occurs at stated intervals, in accordance with the table of redemption values. To illustrate, the issue price of a $1,000 maturity value series F bond is $740. No change in the redemption value of the bond takes place until the end of the first year from the date of issue, when the redemption values rises to $742. If the issue date was May 1, 1947, no entry would be made until April 30, 1948, when the investment account would be charged with two dollars and the interest earned account credited. Thereafter, similar entries would be made at the end of each six-month period to reflect the increases in redemption value.
N.Y. Comp. Codes R. & Regs. Tit. 9 §§ 1645-2.6