3 questions from Wiley, All asking about the same thing, and all use stated interest % to get the answers:
On March 1, year 1, Williams Corporation issued at 103 plus accrued interest, 100 of its 9%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. Williams paid bond issue costs of $5,000. Based on the information above, Williams would realize net cash receipts from the bond issuance of
$ 98,000
$ 99,500<—correct
$103,000
$104,500
This answer is correct. $100,000 of bonds are issued at 103 plus accrued interest (2 months, from January 1 to March 1) less bond issue costs of $5,000. The cash received for the bonds is 103% of $100,000, or $103,000. The cash received for the accrued interest is $1,500 ($100,000 × 9% × 2/12). Therefore, cash receipts total $99,500 ($103,000 + $1,500 – $5,000).
On April 1, year 1, Girard Corporation issued at 98 plus accrued interest, 200 of its 10%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. From the bond issuance Girard would realize net cash receipts of
$191,000
$196,000
$198,500
$201,000<—-correct
This answer is correct. $200,000 of bonds are issued at 98 plus accrued interest (3 months, from January 1 to April 1). The cash received for the bonds is 98% of $200,000, or $196,000. The cash received for the accrued interest is $5,000 ($200,000 × 10% × 3/12). Therefore, cash receipts total $201,000 ($196,000 + $5,000).
On March 1, year 1, Cain Corp. issued at 103 plus accrued interest 200 of its 9%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. Cain paid bond issue costs of $10,000. Cain should realize net cash receipts from the bond issuance of
$216,000
$209,000
$206,000
$199,000<——-correct
This answer is correct. To determine the net cash received from the bond issuance, the solutions approach is to prepare the journal entry for the issuance.
Cash ?
Bond issue costs 10,000
Premium on bonds payable 6,000
Bonds payable 200,000
Interest expense 3,000
The bonds were issued at 103 ($200,000 × 1.03 = $206,000), so the premium is $6,000 ($206,000 – $200,000). The accrued interest covers the 2 months from 1/1 to 3/1 ($200,000 × 9% × 2/12 = $3,000). The net cash received includes the $206,000 for the bonds and the $3,000 for the accrued interest, less the $10,000 paid for bond issue costs ($206,000 + $3,000 – $10,000 = $199,000).
REG 90
FAR 95
AUD 98
BEC 84
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