Question

Ivanhoe Company purchased bonds with a face amount of $750000 between interest payment dates. Ivanhoe purchased the bonds at 101, paid brokerage costs of $14000, and paid accrued interest for three months of $24000. The amount to record as the cost of this long-term investment in bonds is

Answer 1

The amount to record as the cost of this long-term investment in bonds is $771,500

Step-by-step explanation:

The computation of long term investment in bonds is shown below:

= (Face value × cost of bond) + brokerage cost

= ($750,000 ×1.01) + $14,000

= $757,500 + $14,000

= $771,500

The accrued interest should not be included in the computation of long term investment because it is not a received cost, it is earned but actually it is not received. Hence, this accrued interest would not be considered in the computation part.

Thus, The amount to record as the cost of this long-term investment in bonds is $771,500