Reagan Company purchased 10,000 shares of Clinton's Company at $45 per share plus $15,000 of Delta Company's 12% bonds, acquired at par, as an available-for-sale securities. The bond pays interest on June 30 and December 31 each year. What amount should be recorded to the Investment in Available-for-Sale Securities account?

Question

Quizplus · Accepted Answer

The cost of the 10,000 shares of Clinton's Company is $45 per share, so the total cost is:

$45/share * 10,000 shares = $450,000

The cost of the Delta Company's bond is $15,000, and it pays interest twice a year. Since Reagan Company acquired the bond at par, there is no premium or discount to adjust. The interest from the bond needs to be recorded separately as interest revenue when received. Therefore, the total cost to be recorded in the Investment in Available-for-Sale Securities account is the sum of the two purchases:

$450,000 + $15,000 = $465,000

Reagan Company Purchased 10,000 Shares of Clinton's Company at $45