Question

Amex Corporation invests excess cash to purchase $25,000 in corporate bonds on March 30, 2018. In addition to the $25,000, Amex also paid a brokerage fee of $1,000. Amex intends to hold the bonds until maturity and has the ability to do so. When the bonds mature on March 30, 2020, Amex plans to use the cash for its business expansion. Which of the following is included in the journal entry on March 30, 2018?

Answer 1

Answer:

C) a debit to Held-to-Maturity Debt Investments for $26,000

Explanation:

The journal entry should be:

Dr Held-to-maturity debt investments 26,000

    Cr Cash 26,000

Since Amex Corporation is planning to hold the bonds until maturity, it must record the total investment (bonds' price plus brokerage fees) as held to maturity securities.

Investment in securities are generally classified as either:

• Held-to-maturity : the company will hold them until they mature, does not plan to sell them. Are reported as non-current assets.
• Held for trading  
• Available for sale