Barney corporation received authorization on December 31, year 1, to issue 2,500

Question

Barney corporation received authorization on December 31, year 1, to issue 2,500,000 of 6%, 10 year bonds. the interest payment dates are june 30 and decmber 31. all the bonds were issued at a price of 100, plus accrued interest, on February 28, Year 2, two months after the authorization of the bond issue.

a. The amount of cash received by Barney corporation for issuance of the bonds on February 28, year 2, is

b. The amount of cash paid to bondholders on June 30, Year 2, is

c. Bond interest expense reported in Barney's year 2 income statement is

Explanation / Answer

Answer:

a) The amount of cash received by Barney Corporation for issuance of the bond on Feb 28, Year 2 is $252,500,000

Issue Price = Face Value of Bond + Interest Accrued

Issue Price = (2,500,000 x 100) + (2,500,000 x 100 x 6% x 2/12) = $252,500,000

b) The amount of Cash paid to bondholders on June 30, Year 2 is $7,500,000

Interest Amount on June 30, Year 2 = 2,500,000 x 100 x 6% x 6/12 = $7,500,000

c) Bond Interest Expense reported in Barney's year 2 income statement is = $7,500,000 x 2 = $15,000,000

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