Question

on August 1,2016. Illini Company sold three-year $1 million 12% bonds for $1.01 million. The interests are payable semiannually on June 30 and December 31. Please answer the following question (base your calculation on the number of months). I. point How much is the investor's interest payment out of the $1.01 million selling price of the bonds? A. $120,000 . $60,000 C.$30,000 D. $10,000 On August 1, 2016, Illini Company sold three-year $2 million 12% bonds for $2.02 million. The interests are payable semiannually on June 30 and December 31. Please answer the following question (base your calculation on the number of months) 2. point If no interim statements were prepared, how much interest payable shall be debited on December 31, 2016? O A. $20,000 B. $240,000 C. $120,000 D. $60,000

Answer 1

Question 1)

$10,000. (which is Option D)

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Explanation:

The total amount of interest accrued since the last interest payment date (which is June 30th) and actual issue of bonds (which is 1st August) would be $10,000 (1,000,000*10%*1/12), that is for one month. This amount will be collected from the investors at the time of issue. The journal entry to record this transaction is provided as below:

Date	Account Titles	Debit	Credit
01-Aug	Cash	$1,010,000
	Interest Payable		$10,000
	Bonds Payable		$1,000,000

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Question 2:

$20,000. (which is Option A)

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Explanation:

The total amount of interest accrued since the last interest payment date (which is June 30th) and actual issue of bonds (which is 1st August) would be $20,000 (2,000,000*12%*1/12), that is for one month. This amount will be collected from the investors at the time of issue. The amount so collected will be repaid at the time of next interest payment (which would be 31st December). The journal entry to record this transaction is provided as below:

Date	Account Titles	Debit	Credit
31-Dec	Interest Expense	$100,000
	Interest Payable	$20,000
	Cash (2,000,000*12%*6/12)		$120,000