See I LOVE bonds, I wish this exam were only bonds, lol.
Igotthis:
The bonds are dated 4/1 but not issued until 7/1 (3 months) Accrued interest to be paid (1). But the buyer hasn't been in the deal those three months, so they don't really deserve to get that extra interest.
The PAYMENT is always based on the Face Amount and Face Rate.
(you are thinking of when the payment is allocated between interest and amortizing the discount. in which case you would be right. the interest expense booked is the rate times the carrying value. Then you take the payment (rate x face), less the interest exp to get the portion to amortize… but I digress).
The question wants to know the cash received for 99 bond plus interest. When they say plus interest accrued that's interest payable, not interest expense. The buyer pays the prorata interest payable upfront because they don't deserve it. Then on the normal payout date (10/1) the full amount is paid back to them.
The T accounts help me keep it straight.T Accounts for Eagle corp Bond
A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*
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