Question

Kern Company purchased bonds with a face amount of $1,000,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $15,000, and paid accrued interest for three months of $25,000. The amount to record as the cost of this long-term investment in bonds is Group of answer choices

Answer 1

Answer: $1,035,000

Explanation:

In recording the cost of the long term bond, we record only the amount we paid to get it and not the interest we paid on it.

In this case we Kern Company paid for the bonds at 102 of par (par is 100) AND paid brokerage fees as well.

This means that the cost to be recorded is,

= 1,000,000 * (102/100) + 15,000 ( brokerage fee)

= $1,035,000

The amount to record as the cost of this long-term investment in bonds is $1,035,000