On October 1,Ryan Company purchased $200,000 face value 12% bonds for 98 plus accrued interest and brokerage fees and classified them as held-to-maturity securities.Interest is paid semiannually on January 1 and July 1.Brokerage fees for this transaction were $700.At what amount should this acquisition of bonds be recorded?

Question

Quizplus · Accepted Answer

First, the cost of the bonds themselves can be calculated by multiplying the face value by the purchase price: 
$200,000 x 0.98 = $196,000

Next, the accrued interest must be added to the cost. The last interest payment was on July 1, so from July 1 to October 1 (the purchase date), there were 92 days. The interest accrued during that time can be calculated as:
($200,000 x 0.12 x 92/365) = $4,800

Finally, the brokerage fees of $700 can be added to the total cost:
$196,000 + $4,800 + $700 = $196,700

Therefore, the correct answer is B.

On October 1,Ryan Company Purchased $200,000 Face Value 12% Bonds