The U.S.government will pay Simpson Company $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years.At the time Simpson Company purchases the bonds, the market prices these bonds to yield Simpson Company 6% annually (3% each six months).The bonds are classified as held to maturity and Simpson Company would classify this investment as a(n) _____on its _____ because it intends to hold the securities for _____.

Question

Quizplus · Accepted Answer

Since Simpson Company intends to hold the bonds until maturity, the investment is classified as a noncurrent asset on its balance sheet, and not on its income statement or statement of cash flows. Additionally, since the investment will be held for more than one year, it cannot be classified as a current asset.

The USGovernment Will Pay Simpson Company $2,500,000 Each Six Months, Equal