Question

Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest. The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash received on March 1, 2017?

Answer 1

$24,625,000

Step-by-step explanation:

On the issue date the company will receive cash equal to:

• the face value of the bond times 97% = $25,000,000 x 97% = $24,250,000

• plus accrued interest on the bonds = $25,000,000 x 9% x 2/12 = $375,000

total cash received on March 1, 2017 = $24,250,000 + $375,000 = $24,625,000