Brookhaven & Co. owns vast amounts of corporate bonds. Suppose Brookhaven buys $

Question

Brookhaven & Co. owns vast amounts of corporate bonds. Suppose Brookhaven buys $700,000 of MayaCorp bonds at face value on January 2, 2016. The Maya orp bonds pay interest at the annual rate o 3% on June 30 and December 31 and mature on December 31, 2020. Brookhaven intends to hold the investment until maturity. Requirements 1 Ho w uld the bond investment be dass ed on Brookhaven's December 31, 2016, balance sheet? 2. Jounalize the following on Brookhaven's books: a. Receipt of final interest payment on December 31, 2020 b. Disposal of the investment at maturity on December 31, 2020

Explanation / Answer

The bond sheld by Brockhaven & Co. will be classified as long term investments of the company upto December,2018.

In the balance sheet on December 31, 2019 they will be classified as short investments (under current asets) as these will be maturing inthe following year.

2.a. Journal entry to record receipt of final interest on December31, 2020

Annual interest rate is 3%. Annual interest will be $21,000. The semiaanual interest will be $10,500.

b. Disposal of investment at maturity on Dec.31, 2020.

Date Account Title Debit Credit Dec.31, 2020 Cash 10,500 Interest revenue 10,500

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