Question

On July 1, Year 1, Howe Corp. issued 300 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, year 1 and mature on April 1, year 11. Interest is payable semiannually on April 1 and October 1. What amount did Howe receive from the bond issuance

Answer 1

Answer:

Howe receives $304,500 from the issue

Explanation:

The bond issue price is made up of the 99% price plus the interest accrued from the  last date of interest payment to the date of bond purchase.

The amount to be received from the bond issuance is calculated thus:

99% price 300*$1000*99%                             $297,000

Accrued interest 3/12*10%*$1000*300               $7,500

Total amount received from the issue           $304,500

Since the next payment of interest would be paid to the buyer,it is expected that the buyer pays the seller for interest accrued on the date of purchase that would eventually be paid to the buyer