On March 1, 2016, Brown-Ferring Corporation issued $100 million of 12% bonds, dated January 1, 2016, for $99 million (plus accrued interest). The bonds mature on December 31, 2035, and pay interest semiannually on June 30 and December 31. Brown-Ferring’s fiscal period is the calendar year. Required: 1. Determine the amount of accrued interest that was included in the proceeds received from the bond sale. 2. Prepare the journal entry for the issuance of the bonds by Brown-Ferring.

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Asked Jan 21, 2020
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On March 1, 2016, Brown-Ferring Corporation issued $100 million of 12% bonds, dated January 1, 2016, for $99 million (plus accrued interest). The bonds mature on December 31, 2035, and pay interest semiannually on June 30 and December 31. Brown-Ferring’s fiscal period is the calendar year. Required: 1. Determine the amount of accrued interest that was included in the proceeds received from the bond sale. 2. Prepare the journal entry for the issuance of the bonds by Brown-Ferring.

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Expert Answer

Step 1

Bonds

Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental  organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

Accrued interest 

The amount of interest that has already occurred, but not yet the payment is made is known as accrued interest.

 

Step 2

1

 Determine the amount of accrued interest that was included in the proceeds received from sale of the bonds:

Accrued interest amount is calculated by...

Accounting homework question answer, step 2, image 1
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