Question

On January 31, 2021, B Corp. issued $650,000 face value, 11% bonds for $650,000 cash. The bonds are dated December 31, 2020, and mature on December 31, 2030. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2021, balance sheet

Answer 1

Answer:

The amount of accrued interest payable that B should report in its September 30, 2021, balance sheet is $ 23,833.

Explanation:

Prepare a Bond Amortization Schedule using the data :

Hint : First find the Yield to Maturity

N = 10

PV = $650,000

Pmt = ($650,000 × 11%) ÷ 2 = - $35,750

P/ yr = 2

FV = - $650,000

YTM = ?

Using a Financial Calculator, the YTM is 11.64%.

By the end of September 30, 2021, 8 months` interest will have expired.Thus the amortization schedule should accrue interest for 8 months as follows :

Interest $ 23,833 (debit)

Investment in Bond $ 23,833 (credit)

Interest Calculation = $ 35,750 × 8 / 12

                                 = $ 23,833