Question

On July 1, 2018, Spear Co. issued 4,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2018 and mature on April 1, 2028. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?

Answer 1

$4,960,000

Step-by-step explanation:

Given that,

Total no. of bonds issued = 4,000

Interest rate = 10%

Face value of bond = $1,000

Discount rate on issue of bonds:

= 100% - 99%

= 1%

Interest is payable semiannually on April 1 and October 1.

Therefore,

Amount receive from the bond issuance:

= [(Total no. of bonds issued × Face value of bond) × Net of discount percent] + [(Total no. of bonds issued × Face value of bond) × Interest rate × (3/12)]

= [(4,000 × $1,000) × 99%] + [(4,000 × $1,000) × 10% × (3/12)]

= $3,960,000 + $100,000

= $4,960,000