Question

On November 1, 2018, Mason Corp. sold $700,000 of its 10% term bonds dated October 1, 2018. The bonds were sold to yield 8%, with total proceeds of $800,000 plus accrued interest. Interest is paid every April 1 and October 1.

What amount should Mason report for interest payable in its December 31, 2018 balance sheet?

Answer 1

$16,000

Step-by-step explanation:

The computation of the amount reported for the interest payable is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $800,000 × 8% × (3 months ÷ 12 months)

= $16,000

The three months should be taken from October 1 To November 1 and November 1 to December 31

We simply applied the above formula so that the interest payable amount could come