Romer Corporation,a calendar-year firm,is authorized to issue $200,000 of 10 percent,20-year bonds dated January 1,2014,with interest payable on January 1 and July 1 of each year.
-If the bonds were issued at 97 on April 1,2014,plus accrued interest,the amount of cash received by Romer Corporation would be

Question

Quizplus · Accepted Answer

The bonds were issued at 97 on April 1, 2014, which means that the company received 97% of the face value of $200,000, or $194,000. However, since the bonds were issued on January 1, 2014, and interest is payable on January 1 and July 1 of each year, the company would have accrued interest from January 1 to April 1, which is a total of 3 months. The interest accrued at the stated rate of 10% per year would be calculated as follows: 
$200,000 x 10% x 3/12 = $5,000
Therefore, the total amount of cash received by Romer Corporation would be the bond proceeds of $194,000 plus the accrued interest of $5,000, which equals $199,000.

Romer Corporation,a Calendar-Year Firm,is Authorized to Issue $200,000 of 10