Exhibit 14-5
Joseph Company had underwriters prepare a bond issue for $100,000 9%, ten-year bonds dated January 1, 2014 The bonds were issued on March 1, 2014 at 102 plus accrued interest on. Expenses connected with the issue totaled
$5,000 and were deducted in arriving at the net proceeds. Joseph amortizes premiums and discounts using the straight-line method.
-Refer to Exhibit 14-5. The entry to record the issue would include a debit to Cash for

Question

Quizplus · Accepted Answer

The bonds were issued at 102, which means they were issued at 102% of their face value. Therefore, the cash received before expenses and accrued interest is $100,000 * 102% = $102,000. Since the bonds were issued on March 1, and they pay 9% annually, the accrued interest for two months (January and February) needs to be added: $100,000 * 9% * (2/12) = $1,500. So, before expenses, the total cash received is $102,000 + $1,500 = $103,500. After deducting the $5,000 expenses, the net cash received is $103,500 - $5,000 = $98,500.

Exhibit 14-5 Joseph Company Had Underwriters Prepare a Bond Issue for $100,000