Question

Brookhaven & Co. owns vast amounts of corporate bonds. Suppose Brookhaven buys $1,000,000 of RoastCo bonds at face value on January 2, 2018. The RoastCo bonds pay interest at the annual rate of 6% on June 30 and December 31 and mature on December 31, 2032. Brookhaven intends to hold the investment until maturity. Read the requirements. Requirement 1. How would the bond investment be classified on Brookhaven's December 31, 2018, balance sheet? The RoastCo bond investment will be classified as a long-term asset as of December 31, 2018. Requirement 2a. Journalize on Brookhaven's books: Receipt of final interest payment on December 31, 2032. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Date Accounts and Explanation Debit Credit 2032 Dec. 31 Cash Interest Revenue Purchased investment in bonds. 0 Requirements 1. How would the bond investment be classified on Brookhaven's December 31, 2018, balance sheet? 2. Journalize the following on Brookhaven's books: a. Receipt of final interest payment on December 31, 2032. b. Disposition of the investment at maturity on December 31, 2032. Print Done

Answer 1

1. The Roastco bond investment shall be classified as long term asset as on Dec 31,2018

This is because the bonds will be maturing on 2032 and will have benefits to the company for more than 1 year. Long term assets are assets with benefit accruing over 1 year.

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

Date	Particulars	Debit ($)	Credit ($)
Dec.31, 2031	Cash	30,000
	Interest revenue		30,000
	(To record receipt of final interest payment)

Interest = 1000,000 X 6% 6/12 = $ 30,000

The semiannual interest would be therefore $ 30,000

b. Disposal of investment at maturity on Dec.31, 2032

Date	Particulars	Debit ($)	Credit ($)
Dec.31, 2020	Cash	1,000,000
	Investment in Roastco bonds		1,000,000
	(To record disposition of investment at maturity)

1. The Roastco bond investment shall be classified as long term asset as on Dec 31,2018

This is because the bonds will be maturing on 2032 and will have benefits to the company for more than 1 year. Long term assets are assets with benefit accruing over 1 year.

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

Date	Particulars	Debit ($)	Credit ($)
Dec.31, 2031	Cash	30,000
	Interest revenue		30,000
	(To record receipt of final interest payment)

Interest = 1000,000 X 6% 6/12 = $ 30,000

The semiannual interest would be therefore $ 30,000

b. Disposal of investment at maturity on Dec.31, 2032

Date	Particulars	Debit ($)	Credit ($)
Dec.31, 2020	Cash	1,000,000
	Investment in Roastco bonds		1,000,000
	(To record disposition of investment at maturity)

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