A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value as a long-term investment.The company intends to hold the bonds to maturity.The correct entry to record the purchase of the bond investment is:
A)Debit Long-Term Investments-HTM $37,800;credit Cash $37,800.
B)Debit Long-Term Investments-HTM $38,325;credit Cash $38,325.
C)Debit Cash $40,000;credit Long-Term Investments-HTM $40,000.
D)Debit Long-Term Investments-HTM $37,800;debit Investment Expense $525;credit Cash $38,325.
E)Debit Long-Term Investments-HTM $37,800;debit Loss on Investment $525;credit Cash $38,325.

Question

Quizplus · Accepted Answer

The company paid $37,800 plus a broker's fee of $525 for the bonds, which is a total cost of $38,325. As the company intends to hold the bonds until maturity, they are classified as "held-to-maturity" (HTM) investments. Therefore, the correct entry would be to debit Long-Term Investments-HTM for $38,325 and credit Cash for the same amount. Option A is incorrect because it doesn't include the broker's fee. Option C is incorrect because it only records the maturity value of the bond, not the actual cost paid. Option D and E are incorrect because they include an additional expense or loss, which is not necessary for this transaction.

A Company Paid $37,800 Plus a Broker's Fee of $525