Question

On March 1 2020, Hill issued 500 of its $100 face value bonds at 103 plus accured interest. The bonds were dated Jan 1, 2020 at rate of 9% payable semiannually on June 30 and Dec 31. What total amount of cash did Hill receive on the date the bond were issued?

a. 56,000

b. 52,625

c. 51,500

d. 53,000

e. 52,250

Answer 1

Number of bonds= 500

Face value per bond = $100

Total face value of bonds = Number of bonds x Face value per bond

= 500 x 100

= $50,000

Issue price = 103

Date of interest payments = June 30 and December 31

Bond issue date = March 1

Since bonds were issued 2 months after the interest date, hence two months accrued interest will also be received at the time of issue of bonds.

Accrued interest = Total face value of bonds x Interest rate x 2/12

= 50,000 x 9% x 2/12

= $750

Cash received for accrued interest = $750

Cash received from bonds issue = Total face value of bonds x Issue price

= 50,000 x 103%

= $51,500

Total cash received on the date of bond issue = Accrued interest+ Cash received from bonds issue

= 750+51,500

= $52,250

total amount of cash ,ill receive on the date the bond were issued $52,250

Correct option is e.

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