[loveaccoutning]

Amstop Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

a. $19,400,000
b. $20,450,000
c. $19,700,000
d. $19,100,000

[morgaine300]

See what I said on this post:
https://www.askmehelpdesk.com/accoun...le-386957.html

[loveaccoutning]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds...

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

[loveaccoutning]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds...

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

[loveaccoutning]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds...

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

[loveaccoutning]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds...

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

[loveaccoutning]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds...

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

[loveaccoutning]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds...

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

[loveaccoutning]

Sorry - not sure why my response posted so many times?

[loveaccoutning]

Or is it that the total amount of cash received is only 19,400,000 because even though 30,000 is accured interest - would this just be extra info ut it has no baring on total "cash recieved"?

[morgaine300]

Your original answer was correct. When the interest comes due at the end of June, the entire 900,000 for six months will be paid out. So 1/3 of that, the 300,000, is going to be paid in when the bonds are purchased. The 900K and 300K will net against each other, creating a 600K actually interest expense. Which is exactly what it should be for March through June.

As a note, even when it's not homework, it's more useful to you to tell us what you think first. You actually learn better if you've thought it through first and then find out where you might be going wrong, get additional info, etc.

And you had it right. :-) I could have told you that immediately if you'd posted your work.

[rehmanvohra]

They aren't homework questions. School doesn't start for another two weeks. I was trying to review my old class but I have never really understood bonds. I think there maybe an easier way to learn what I need to know but this area of accounting but I haven't found it yet. I read but just get more confused when it comes to bonds....

As for the problem I figured there would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Then that means the total cash received could be 19,400,000+300,000=19,700,000

The solution is correct. The company will receive $19.7 million when they are issued on March 1. $300k represents interest for two months which will not be paid to the bondholders. They will get the interest payment in June for four months only. Since the issue date of bonds is January 1, the company will record the total payment of interest for 6 months $900k less $300k received on issue of bonds.

[ynnejolem]

Hello I'm a bit confused about that 2/12 in your solution... where was that taken??
I'm also having the same problem as that in my lesson on bonds payable...

[pready]

Bonds were issued on Mar 1 with accrued interest, but dated Jan 1. So you need to calculate interest for Jan and Feb, which is 2 months out of year or 2/12.