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Austin Corporation issues $6,000,000 of 10%,10-year bonds,dated December 31,Year 1.The bonds are issued on April 30,Year 2,at 100 plus accrued interest.Interest on the bonds is payable semiannually each June 30 and December 31.
-The total amount of cash received by Austin Corporation upon issuance of the bonds on April 30,Year 2,is:
A)$6,000,000.
B)$6,200,000.
C)$6,150,000.
D)$6,300,000.

Question

Quizplus · Accepted Answer

The bonds were issued at 100 plus accrued interest, meaning the purchasers of the bonds paid the face value of the bonds plus interest that had accrued from December 31, Year 1 (the date the bonds were dated) to April 30, Year 2 (the date the bonds were issued). This accrued interest would be calculated as follows: 
$6,000,000 x 10% x (4/12) = $200,000 
Therefore, the total amount of cash received by Austin Corporation upon issuance of the bonds on April 30, Year 2, would be: 
$6,000,000 + $200,000 = $6,200,000

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