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 Debt Investments−HTM $37,800; credit Cash $37,800.
B)Debit Debt Investments−HTM $38,325; credit Cash $38,325.
C)Debit Cash $40,000; credit Debt Investments−HTM $40,000.
D)Debit Debt Investments−HTM $37,800; debit Investment Expense $525; credit Cash $38,325
E)Debit Debt Investments−HTM $37,800; debit Loss on Investment $525; credit Cash $38,325.

Question

Quizplus · Accepted Answer

The entry to record the purchase of the bond investment should include the cost of the bonds ($37,800) plus the broker's fee ($525), which equals $38,325. The account to debit is Debt Investments−HTM, which represents a long-term investment in bonds held to maturity. The account to credit is Cash, which represents the payment made for the investment. Therefore, the correct entry is Debit Debt Investments−HTM $38,325; credit Cash $38,325.

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