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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be:

  1. a. increased by accrued interest from June 1 to November 1
  2. b. increased by accrued interest from May 1 to June 1
  3. c. decreased by accrued interest from June 1 to November 1
  4. d. decreased by accrued interest from May 1 to June 1

To determine

Identify the effect of cash received by the issuer, if the interest payments dates of a bond are May 1 and November 1.

Explanation

Accrued interest on bonds:

Accrued interest on bonds is interest revenue which is earned but yet to be received since the most recent payment of interest.

Justification for the incorrect option a:

Increased by accrued interest from June 1 to November 1 is an incorrect.

Justification for the incorrect option c:

Decreased by accrued interest from June 1 to November 1 is an incorrect option.

Justification for the incorrect option d:

Decreased by accrued interest from May 1 to June 1 is an incorrect option...

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