Question

Sandhill Company purchased bonds with a face amount of $1200000 between interest payment dates. Sandhill purchased the bonds at 102, paid brokerage costs of $15800, and paid accrued interest for three months of $25800. The amount to record as the cost of this long-term investment in bonds is

Answer 1

$1,239,800

Step-by-step explanation:

Face value - $1,200,000

Premium rate = 102/100

Brokerage costs = $15,800

Accrued interest for three months = $25,800

Cost of long term investment in the bond is recorded as

(1,200,000 * 102/100 )+ 15,800

1,224,000 +15,800 = 1,239,800

Please note that the accrued interest is expended in the income statement under interest and finance charges, therefore it is not capitalized as the cost of the long term investment.