Table 15-1
Nickle Industries needs to raise capital for expansion purposes. Management is considering issuing $1,000,000 of 7.5%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Nickle's year end is December 31.
-Refer to Table 15-1.Assuming the bonds are issued at 98 plus accrued interest on July 1,2017,the semiannual cash payment for interest on December 1,2017,will be:

Question

Quizplus · Accepted Answer

The calculation for the semiannual cash payment for interest on December 1, 2017, is as follows:

Total interest payment per year = $1,000,000 x 7.5% = $75,000 
Semiannual interest payment = $75,000 / 2 = $37,500

Since the bond is issued on July 1, 2017, the accrued interest from June 1 to July 1 must be added to the issue price of $980,000 (98% of $1,000,000).

Accrued interest = $75,000 x (1/2) x (30/360) = $3,125 
Issue price = $980,000 + $3,125 = $983,125

Therefore, the semiannual cash payment for interest on December 1, 2017, will be $37,500. Hence, the correct answer is C.

Table 15-1 Nickle Industries Needs to Raise Capital for Expansion Purposes. Management