The U.S.government will pay Edie 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 Edie Company purchases the bonds, the market prices these bonds to yield Edie Company 6% annually (3% each six months).The bonds are classified as held to maturity and Edie Company would classify this investment as a(n) _____on its _____ because it intends to hold the securities for _____

Question

Quizplus · Accepted Answer

Edie Company would classify this investment as a noncurrent asset on its balance sheet because it intends to hold the securities for more than one year, until the maturity date of the bonds. The fact that the U.S. government will pay Edie Company $2,500,000 each six months and repay the $100 million at the end of five years does not affect the classification of the investment as a noncurrent asset, as this refers to the time horizon for Edie Company's own holding of the investment. The other options are not correct because this transaction pertains to an investment in bonds held to maturity, which is reported as a noncurrent asset on the balance sheet, and not as a current asset or as an item on the income statement or statement of cash flows.

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