help understanding this question
On November 1, Mason Corp. issued $800,000 of its 10-year, 8% term bonds dated October 1. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31 balance sheet?
This is one of those questions that have extra bits of information that don't have any impact on the calculation being asked for.
The proceeds ($700k) of the bond are just the amount of cash actually received, but the balance sheet liability is for the full amount that will be paid at maturity ($800k), so the $700k is not necessary info.The yield rate is also irrelevant because that is more for investors to determine how much they will receive for purchasing the bonds than for the company. The company has to accrue based on the stated interest rate because that is what they will pay every 6 months. So ignore the 10%.
Plug the $800k and 8% into the interest formula for a 3 month accrual and you get $16K.
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