Question

On September 1, 2018, Contemporary Products, issued $16 million of its 10% bonds at face value. The bonds are dated June 1, 2018, and mature on May 30, 2026. Interest is payable semiannually on June 1 and December 1. At the time of issuance, Contemporary Products would receive cash proceeds that would include accrued interest of:

Answer 1

Answer:

$0.4 million or $400,000

Explanation:

As the Bonds are issued 3 months after dated time. So, the interest of these 3 months is also included in the cash proceeds from the bonds.

Cash proceeds = $16 million

Coupon Payment = $16 million x 10% = $1.6 million

Interest accrued = $1.6 million x 3/12 = $0.4 million

At the time of issuance, Contemporary Products would receive cash proceeds that would include accrued interest of $0.4 million