[reo]

Any and all assistance is appreciated, thank you!

On May 1, 2015, Shiny Company issued $400,000 of 6%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1. How much cash would Shiny receive on issuance date?

A – $400,000

B – $408,000

C – $412,000

D – $424,000

Reo

[Anonymous]

Cash 408,000

BP: 400,000

Interest Expense: 8000 (400,000 *0.06*4/12)

if the bond was issued in 1/1 then simply just Cash+BP 400000.

Since the bond is issued in between the interest payment date, the purchaser won't get the full interest payment on july, they have to pay the accrue interest (Jan to April) upfront in cash.

F5-45 has a related example of this. 🙂 hope that helps.

[Author]

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