On January 1,2015,Brooklyn Company purchases $100,000,6% bonds at a price of 95 and a maturity date of January 1,2025.Brooklyn Company intends to hold the bonds until maturity.Interest is paid semiannually,on January 1 and July 1.Brooklyn Company has a calendar year end.The adjusting entry to amortize the bond investment on December 31,2015 is:

Question

Quizplus · Accepted Answer

The correct answer is C because the bond investment is held to maturity, and the amortization is calculated as the difference between the cost of the investment and the maturity value, divided by the number of interest periods. In this case, the cost of the investment is $95,000, the maturity value is $100,000, and the number of interest periods is 20 (10 years x 2 interest payments per year). Therefore, the amortization is $500 per period ($5,000 / 10).

On January 1,2015,Brooklyn Company Purchases $100,000,6% Bonds at a Price