Question

Grayson Company purchased $400,000 face value bonds at 99. Accrued interest for three months was $6,000, and brokerage fees were $4,000. The cost of this long-term investment in bonds is

Select one:

a. $406,000

b. $404,000

c. $410,000

d. $400,000

e. $396,000

Quinlan Company records $45,000 in the unearned service revenue account during the year. The ending balance of unearned service revenue is determined to be $18,000. The adjusting entry involves a:

Select one:

a. debit to service revenue for $18,000

b. debit to service revenue for $27,000

c. credit to service revenue for $27,000

d. credit to service revenue for $18,000

e. credit to unearned revenue for $18,000

Answer 1

1) Face value = $400,000

issue price = $400,000 * 99 / 100 = $396,000

Brokerage costs = $4,000

Total cost of the Long-term Investment = $396,000 + $4,000 = $400,000

Total cost of the Long-term Investment = $400,000

2) Beginning unearned service revenue account $45,000

Ending unearned service revenue account = $18,000

Unearned revenue charged to Service revenue during the period = $45,000 - $18,000 = $27,000

Journal entry during the year

Debit Unearned revenue account $27,000

Credit Service revenue account $27,000

So option 'c' is correct

Credit to service revenue for $27,000