Question

Seamark buys $300,000 of Eider's 8% five-year bonds payable at par value. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:A.the debt securities should be recorded at the cost$300000
B.the securities will have a maturity value of $300000
C.the semiannual interest payment amount is $12000
D.the semiannual interest payment amount is $24000
E.interest revenue should be credited when an interest paymen is received

Answer 1

Answer:

D.the semiannual interest payment amount is $24000

Explanation:

Debt securities are recorded on the purchase price of the securities which includes purchase price and any brokerage costs etc. Cost recorded and maturity value of this security will be $300,000 because these are issued on par and will mature on par value.The semiannual interest payment will be $12,000 ( $300,000 x ( 8% /2)) rather than $24,000. Interest revenue will also be credited to the interest revenue account. So the only incorrect option is D.the semiannual interest payment amount is $24000.