On January 1,2014,Brig Corp.paid $39,200 plus a brokerage fee in the amount of $800 to buy Sonny's 8%,two-year bonds payable with a $40,000 par value.The bonds pay interest semiannually on June 30 and December 31.Brig intends to hold the bonds until they mature on December 31,2016.How would the company record the purchase of the bonds?
A)Debit Long-Term Investments-HTM (Sonny) for $39,200 and credit Cash for $39,200.
B)Debit Short -Term Investments-HTM (Sonny) for $40,000 and credit Cash for $40,000.
C)Debit Long -Term Investments-HTM (Sonny) for $40,000 and credit Cash for $40,000.
D)Debit Long-Term Investments-HTM (Sonny) for $39,200,debit Brokerage Fee Expense for $800,and credit Cash for $40,000.
E)Debit Long-Term Investments-HTM (Sonny) for $39,200,debit Unrealized Loss-Income for $800,and credit Cash for $40,000.

Question

Quizplus · Accepted Answer

The purchase of the bonds should be recorded at the total cost, which includes the par value and the brokerage fee. Therefore, the correct entry is to debit Long-Term Investments-HTM for the total amount paid ($40,000) and credit Cash for the same amount.