[Mikey89]

On 7/1/10 E Corp issued 600 of its 10% $1000 bonds at 99 plus accrued interest. The bonds are dated 4/1/10 and mature 4/1/20. Interest is payable semiannually on 4/1 and 10/1. What amount did Eagle receive from the bond issuance?

This question is confusing me like no other. Does anyone get this? Why would Interest Expense dncrease your cash when your issuing bonds and increase your cash when you invest in bonds? The answer is 609000 btw.

Reg 4/18/12 78
Far 7/30/12 74, 74, 75
Bec 11/11/12 74, 78
Aud TBD 51, 71, XX

[Mikey89]

Okay I worded that a wrong. My real question is, this company is issuing the bonds. They are responsible for PAYING interest, but for some reason they add the interest expense back on as cash in the problem.

The JE is

$$ 609000

Discount on BP 6000

Bonds Payable 600000

Inteest Exp 15000

But I just don't know why there getting cash when they are supposed to be paying it for INT exp.

Reg 4/18/12 78
Far 7/30/12 74, 74, 75
Bec 11/11/12 74, 78
Aud TBD 51, 71, XX

[Mikey89]

Okay I worded that a wrong. My real question is, this company is issuing the bonds. They are responsible for PAYING interest, but for some reason they add the interest expense back on as cash in the problem.

The JE is

$$ 609000

Discount on BP 6000

Bonds Payable 600000

Inteest Exp 15000

But I just don't know why there getting cash when they are supposed to be paying it for INT exp.

Reg 4/18/12 78
Far 7/30/12 74, 74, 75
Bec 11/11/12 74, 78
Aud TBD 51, 71, XX

[forever4]

It is the accrual interest. The buyer is responsible to pay for it then they'll get it back on the interest payment date!

=> Cash received on bond 594 + accrual interest 15 = 609

FAR 5/14 88 PASSED!
REG 7/13 74 :((((((((....! I cant believe it!!!! I studied so hard...
REG retake 11/29 -> 89!!!!!!!!!!!!!!!!!!!
BEC 10/11/12 -> 84!!!!!!!!!!!!!
AUD 10/25/12 -> 95!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

I'm DONE! OMG 8 months of hard work.

I SHALL PASS. BECAUSE IT'S ME, SO EVERYTHING WILL BE OK!

[Mikey89]

No homo. I LOVE YOU!!

Reg 4/18/12 78
Far 7/30/12 74, 74, 75
Bec 11/11/12 74, 78
Aud TBD 51, 71, XX

[Mikey89]

Lmao, I got a lil excited there, mah bust. What I meant to say is, thank you very much. That's one of the only problems I still didn't get and was looking all over for an answer.

Reg 4/18/12 78
Far 7/30/12 74, 74, 75
Bec 11/11/12 74, 78
Aud TBD 51, 71, XX

[forever4]

You're welcome! 🙂

Usually Wiley does a good job at explaining these!

FAR 5/14 88 PASSED!
REG 7/13 74 :((((((((....! I cant believe it!!!! I studied so hard...
REG retake 11/29 -> 89!!!!!!!!!!!!!!!!!!!
BEC 10/11/12 -> 84!!!!!!!!!!!!!
AUD 10/25/12 -> 95!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

I'm DONE! OMG 8 months of hard work.

I SHALL PASS. BECAUSE IT'S ME, SO EVERYTHING WILL BE OK!

[lysol12345]

sorry, i need to bump this question to satisfy my own curiosity. I understand the concept of accrued interest due to the seller from the buyer when the bond is transacted between coupon payment dates. I always thought it was just for secondary market transactions (i.e. that this accrued interest concept would not apply to primary market transactions such as bond issuers). Clearly I was wrong.

My question is why are the bonds issued after the bond date? or in other words, why not date the bonds as of the issuance date?

[Author]

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