Interest on Bond Investments On May 1, 2016, Carly Company purchased $81,000 of

Question

Interest on Bond Investments

On May 1, 2016, Carly Company purchased $81,000 of 6%, 15-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 $28,800 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

The bonds were purchased on May 1st with interest for two months i.e, interest for the month of April and may is to be received by Carly company. So, it comes to $81,000*6%*2/12

=$810.is the accrued interest on bonds till May 1st.---------(1)

Interset on bonds till September 1=$81,000*6%*4/12

=$1,620.-------(2)

Value of bonds sold with interest=$28,800.

Remaining value of bonds in hand=$81,000 -$28,800

=$52,200.

Interest accrued on thse bonds =$52,200*6%*4/12

=$1,044.-----------(3)

So, total interest earned=(1)+(2)+(3)

=$810+$1,620+$1044

=$3,474.

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