Blanding Company issues $1,000,000 of 8%, 10-year bonds at 98 on February 28, 2015. The bond pays interest on February 28 and August 31. On August 31, 2015, how much cash did Blanding pay out to bondholders?
A)$41,000
B)$40,000
C)$80,000
D)$39,000

Question

Quizplus · Accepted Answer

The annual interest payment on the bond is calculated as $1,000,000 x 8% = $80,000. This amount is split into two semi-annual payments, so each payment is $40,000. Since the bond was issued on February 28, 2015, the first interest payment has already been made on that date. Therefore, on August 31, 2015, Blanding will only need to make the second interest payment of $40,000 to the bondholders.

Blanding Company Issues $1,000,000 of 8%, 10-Year Bonds at 98