Question

McCoy's Building Supplies built a new headquarters to support its surging sales growth. McCoy issued a 10 year bond at 100 with a stated rate of 5% and a face value of 100,000 on January 1, 2016. Payments are due semi-annually. On January 1, 2017, Emmett McCoy wanted to see the financial statements for 2016. Based upon the information provided answer the following question: How much were the cash interest payments in 2016

Answer 1

$5,000

Step-by-step explanation:

Since the payments are due semi-annually and the bond were issued on January 1, 2016 at 100, we will have to calculate the interest cash payments for the two semi-annuals in 2016. Therefore, the interest rate to use is the full annual 5% stated rate. Therefore, we have:

Interest cash payment = Bond face value × Interest rate

= 100,000 × 5%

Interest cash payment = $5,000.

Therefore, the cash interest payments in 2016 is $5,000.