On June 1, $50,000 of treasury bonds were purchased between interest dates. The brokerage 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 Investments-Treasury Bonds?

Question

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The total cost will be:
- $50,000 for the bonds
- $500 for the brokerage commission
- Plus accrued interest between the last interest payment date (January 1) and the date of purchase (June 1).

To calculate the accrued interest, we need to consider how many days have passed from January 1 to June 1. There are 31 days in January and 28 days in February (assuming a non-leap year), so that's 59 days. July 1 minus June 1 is another 30 days. So, a total of 89 days have passed since the last interest payment.

To find the amount of accrued interest, we need to calculate what portion of the semiannual interest payment has accrued during those 89 days. The semiannual interest payment is 12% of $50,000, or $6,000. Divide that by 2 to get the amount of interest paid for each six-month period, which is $3,000.

To calculate the portion of that interest payment that has accrued during the 89-day period, we need to prorate it based on the number of days.

$3,000/180 days * 89 days = $1,475

So, the total cost to be debited to Investments-Treasury Bonds is:

$50,000 + $500 + $1,475 = $50,975, rounded to $50,500.

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