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?

Answer 1

Answer:

$16,000

Explanation:

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?

Since interest is deemed to have been paid on October 1 and is being accrued against April 1 of the following year;

In Dec 31, Interest has accrued for 3 months from October to December

Interest payable = 8% x 800,000 x (3 months / 12 months) = $16,000