On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?
A) $50,000
B) $50,500
C) $49,500
D) $53,000

Question

Quizplus · Accepted Answer

The total cost to be debited to the Investment - Treasury Bonds account will consist of the cost of the bonds and the broker commission.

The cost of the bonds will be the purchase price plus any accrued interest from the last interest payment date (January 1) up to the date of purchase (June 1).

Accrued interest = (purchase price) x (annual interest rate) x (time from last interest payment date to date of purchase)

For the bonds purchased on June 1: 
Accrued interest = $50,000 x 0.12 x (5/12) = $2,000

So the cost of the bonds will be: 
Purchase price + accrued interest = $50,000 + $2,000 = $52,000

Adding the broker commission of $500, the total cost to be debited to the Investment - Treasury Bonds account will be: 
$52,000 + $500 = $50,500

Therefore, the correct answer is (B) $50,500.

On June 1, $50,000 of Treasury Bonds Were Purchased Between