Interest on Bond Investments On May 1, 2016, Carly Company purchased $78,000 of

Question

Interest on Bond Investments

On May 1, 2016, Carly Company purchased $78,000 of 7%, 10-year Baltimore Company bonds at their face value plus two months' accrued interest. The bonds pay interest on March 1 and September 1. On October 1, 2016, Carly Company sold $27,600 of the Baltimore Company bonds acquired on May 1, plus one month's accrued interest. On December 31, 2016, four months' interest was accrued for the remaining bonds.

Determine the interest earned by Carly Company on Baltimore Company bonds for 2016. Do not round interim calculations. If required, round final answer to the nearest dollar.

Explanation / Answer

Calculation of interest earned by Carly Company on Baltimore Company bonds for 2016:

September 1.
Interest earned = $78,000 x 7% x 4/12 = $1,820

October 1.
Interest earned = $27,600 x 7% x 1/12 = $161

December 1.
Interest earned = $50,400 x 7% x 4/12 = $1,176
($78,000 - $27,600)

Total Interest earned = $3,157

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