Kaleidoscope Paint
On January 1, 2019, this company issued $500,000, 10-year, 9% bonds for $480,745. The bonds pay interest on June 30 and December 31. The market rate is 10%. The company plans to use the effective interest method of amortizing bond discounts and premiums.
-Refer to Kaleidoscope Paint. The cash payment on June 30, 2019, is

Question

Quizplus · Accepted Answer

The cash payment for the bonds on June 30, 2019, would be the interest payment based on the face value of the bonds and the stated interest rate. Since the bonds have a face value of $500,000 and a stated interest rate of 9%, we can calculate the semiannual interest payment as follows:
Annual interest payment = Face value of bonds x Stated interest rate
Annual interest payment = $500,000 x 9%
Annual interest payment = $45,000
Since interest is paid semiannually, we divide the annual interest payment by 2 to find the amount paid each six months:
Semiannual interest payment = Annual interest payment / 2
Semiannual interest payment = $45,000 / 2
Semiannual interest payment = $22,500
Therefore, the cash payment on June 30, 2019, is $22,500.
The correct answer is b. $22,500.

Kaleidoscope Paint On January 1, 2019, This Company Issued $500,000, 10-Year, 9