Question

27. A company paid $58,200 to acquire 7% bonds with a $60,000 maturity value. The company intends to hold the bonds to maturity. At the date of maturity the cash proceeds the investor will receive are:

Select one:

a. $64,200

b. $60,000

c. $0

d. $55,800

e. $58,200

28. An investor paid $48,500 cash to acquire 1,000 shares of $5 par value common stock of ABC Corporation. The investor has insignificant influence in ABC Corporation. The correct entry to record the purchase of the investment is:

Select one:

a. Debit Cash $50,000; credit Stock Investments $50,000

b. Debit Stock Investments $48,500; debit Investment Expense $1,500; credit Cash $50,000

c. Debit Stock Investments $50,000; credit DIscount on Investment $1,500; credit Cash $48,500

d. Debit Stock Investments $50,000; credit Cash $50,000

e. Debit Stock Investments $48,500; credit Cash $48,500

Answer 1

(27) Answer: option b.$60,000

Reason:

Normally bonds are matured at face value.

In the question, maturity value is already given i.e. $60,000. At the date of maturity, the cash proceed the investor will receive is $60,000. The bond issuer pays coupon interest of 7% periodically ( normally semi-annually) each year.

(28) Option C: Debit stock investments $50,000; Credit discount on investments $1,500 and Credit cash $48,500.

Reason:

Stock investment is debited because it's a purchase for the investor. The investor gets discount of$1,500 for acquiring common stock of$50,000, , it's an income to the investor. Show discount on investment $1,500 is credited. Cash of $48,500 is credited because it is paid by the investor for acquiring common stock of ABC Corporation.