Question

On September 1, 2021, Red Co., issued $48 million of its 10% bonds at face value. The bonds are dated June 1, 2021, and mature on May 30, 2031. Interest is payable semiannually on June 1 and December 1. At the time of issuance, Red would receive cash proceeds that would include accrued interest of:

Answer 1

$1,200,000

Step-by-step explanation:

The computation of the accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $48,000,000 × 10% × (3 months ÷ 12 months)

= $1,200,000

We simply applied the simple interest formula by considering the principal amount, rate of interest and the number of months so that the correct amount could come