1/ Landmark Corp. buys $510,000 of Schroeter Company\'s 9%, 5-year bonds payable

Question

1/ Landmark Corp. buys $510,000 of Schroeter Company's 9%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include:

Multiple Choice

A debit to Long-Term Investments-AFS $510,000.

A debit to Short-Term Investments-Trading $510,000.

A debit to Long-Term Investments-HTM $510,000.

A debit to Short-Term Investments-AFS $510,000.

A debit to Cash $510,000.

2/ A company paid $32,800 plus a broker's fee of $400 to acquire 8% bonds with a $35,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

Multiple Choice

$37,800.

$33,200.

$35,000.

$35,400.

$32,800.

Explanation / Answer

Since the bonds will be hold till the maturity for 5 years, this investment will fall under long term investment , so the entry will include (A debit to Long-Term Investments-AFS $510,000)

The correct answer is A.

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When the bond matures it pays the last coupon and the par value

So total proceed = 35000 + 35000* .08

                                = 35000 + 2800

                                = $37800

Correct answer is A

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Hope that helps.

Feel free to comment if you need further assistance J

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