10-10E_1 - Horngren'S Financial And Managerial Accounting

Question

 Accounting for debt investments

League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up intends to hold the investment until maturity.

Requirements 

1. How would the bond investment be classified on League Up’s December 31, 2018, balance sheet?

Step-by-Step Solution

Answer

Bonds investment will be reported on the balance sheet as a long-term investment. 

Definition of Interest Rate

The percentage rate that will be used to determine the interest to be paid on the borrowed amount is known as the interest rate. 

Classification of Bond Investment

The bonds will be reported as held-to-maturity security under long-term investment in the company’s balance sheet.