On March 1,2012,WC issued 10% stated interest rate,10 year debentures dated January 1,2012,in the face amount of $1,000,000,with interest payable on January 1 and July 1.The debentures were sold to yield 12% plus accrued interest.How much should WC debit to cash on March 1,2012?

Question

Quizplus · Accepted Answer

To calculate the amount to be debited to cash, we need to calculate the issue price of the debentures.

First, we need to calculate the annual interest payment:

Face value of debentures x Stated interest rate = $1,000,000 x 10% = $100,000

Next, we need to calculate the amount of interest accrued from January 1 to March 1 (the date of issuance):

Annual Interest Payment x Time elapsed since last interest payment / 365 = $100,000 x 59/365 = $16,438

Adding the accrued interest to the annual interest payment gives us the total amount of interest payable for the first interest period:

Total Interest Payable = Annual Interest Payment + Accrued Interest = $100,000 + $16,438 = $116,438

Now, we can use the information provided in the question to calculate the issue price:

Selling Price - Accrued Interest = Face Value

Solving for the selling price:

Selling Price = Face Value + Accrued Interest = $1,000,000 + $16,438 = $1,016,438

Therefore, the amount to be debited to cash on March 1, 2012 is $901,967 ($1,016,438 x 0.88889).

On March 1,2012,WC Issued 10% Stated Interest Rate,10 Year Debentures