CMA Study Group

CMA part 2 bonds

  • 1.  CMA part 2 bonds

    Posted 27 days ago

    can someone help explaining this answer

    On January 1, Year 2, Oak Co. issued 400 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, Year 1, and mature on October 1, Year 11. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, Year 1, to January 1, Year 2, amounted to $8,000. On January 1, Year 2, what amount should Oak report as bonds payable, net of discount?
    Answer (D) is correct.
    A bond issued "at 97" is issued at a price equal to 97% of its face amount (400 bonds × $1,000 face amount × .97 = $388,000). At the issue date, no time has passed, so no amortization has occurred, and the accrued interest is credited to either interest payable or interest expense. The reported amount is therefore $388,000 ($400,000 – $12,000).


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    Tayba Al-Mehdar
    Analyst
    Khobar
    Saudi Arabia
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  • 2.  RE: CMA part 2 bonds

    Posted 27 days ago

    Hi Tayba

    Note: Bonds are issued and trade in increments of $1,000 face, or par, value. They are quoted at
    their price per $100 of face value. Therefore, if a bond is quoted on the secondary market at a price of
    101, the bond costs $101 per $100 of face value, or 101% of the total face value. A $1,000 bond quoted
    at 101 would sell for 101% of $1,000, or $1,010.
     

    Here in the question 400 bonds issued at 97 so this means 400X1000X.97= 388,000

    12000/- is interest on bonds and question is bond value on Jan 1 and Y2 and bond is issued also on Jan 1 Year 2 so 388,000 will be value reported as bond payable.  



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    Badar Ghafoor
    Accountant
    Dubai
    United Arab Emirates
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