Question

Amex Corporation invests excess cash to purchase $25,000 in corporate bonds on March 30, 2018. In addition to the $25,000, Amex also paid a brokerage fee of $1,000. Amex intends to hold the bonds until maturity and has the ability to do so. When the bonds mature on March 30, 2020, Amex plans to use the cash for its business expansion. Which of the following is included in the journal entry on March 30, 2018?A) a debit to Held-to-Maturity Debt Investments for $25,000B) a debit to Trading-Debt Investments for $25,000C) a debit to Held-to-Maturity Debt Investments for $26,000D) a debit to Trading-Debt Investments for $26,000

Answer 1

Answer:

C. a debit to Held-to-Maturity Debt investments for $26,000

Explanation:

In as much Amex corporation is intending to place on hold the bonds till they mature; total investments must be recorded i.e price of bonds including commission for brokerage, as held to securities until they mature.

Classification of investments in securities are ; Held-to-maturity, meaning that the company is not planning to sell the investments hence hold on to them till they mature. They are however classified as non current assets. Investment in securities could also be made available for sale or held for further trading.

The journal entry is therefore;

Dr Held-to-Maturity debts investments $26,000

Cr Cash $26,000