Question

on january 1, 2024, legion company sold $290,000 of 11% ten-year bonds. interest is payable semiannually on june 30 and december 31. the bonds were sold for $258,046, priced to yield 13%. legion records interest at the effective rate. legion should pay cash interest for the six months ended june 30, 2024, in the amount of:

Answer 1

Legion Company should pay a semiannual cash interest of $15,950 for the six months ended June 30, 2024, based on the semiannual rate of 5.5% applied to the face value of the $290,000 bonds.

Step-by-step explanation:

How to Calculate Cash Interest for Bonds

The student has inquired about the cash interest payment for a six-month period on bonds issued by Legion Company. First, let's note the annual interest rate of the bond, which is 11%. Given that interest is paid semiannually, for the six-month period, the interest rate would effectively be half of the annual rate, which is 5.5%.

Now, to calculate the cash interest, we use the face value of the bonds ($290,000) and apply the semiannual interest rate:
Cash Interest = Face Value × Semiannual Interest Rate
Cash Interest = $290,000 × 5.5%
Cash Interest = $15,950

This is the cash interest that Legion should pay for the six months ended June 30, 2024.