Question

On January 1, 2004, Oak Co. issued 400 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, 2003 and mature on October 1, 2013. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, 2003 to January 1, 2004, amounted to $8,000. On January 1, 2004, what amount should Oak report as bonds payable, net of discount?

Answer 1

Answer:

Oak Co.

The amount that Oak should report as bonds payable, net of discount is:

$400,000.

Explanation:

a) Data and Calculations:

Cash from the issue of 400 bonds = 400 * $1,000 * 97/100 = $388,000

Interest rate = 8% semiannually on April 1 and October 1

Bonds payable = $400,000 ($1,000 * 400)

Date of bonds = October 1, 2003

Accrued interest from October 1, 2003 to January 1, 2004 = $8,000

b) The bonds payable is the face value of the bonds.  It is the amount that will be due for repayment to bondholders on the maturity of the bonds in 10 years' time, precisely on October 1, 2013.