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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Original Message:
Sent: 12-29-2020 12:28 PM
From: Tayba Al-Mehdar
Subject: CMA part 2 bonds
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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