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Q5SE_1

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Horngren'S Financial And Managerial Accounting
Found in: Page 656

Short Answer

Determining bond amounts

Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable at 99.5. Interest is paid semiannually.

Requirements

1. How much cash did Savvy receive when it issued the bonds payable?

2. How much must Savvy pay back at maturity?

3. How much cash interest will Savvy pay each six months?

Answer:

The amount received by Savvy on the issue is $3,482,500.

See the step by step solution

Step by Step Solution

Step 1: Definition of interest

Interest is the amount paid by the company to the investors or creditors against using their money for given period.

Step 2: Amount receive on the issue of bonds

In this, bonds are issued at a discount

Hence, the cash received by Savvy when it issued money is $3,482,500.

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