Question

Determining bond amounts

Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable

at 99.5. Interest is paid semiannually.

Requirements

1. How much cash did Savvy receive when it issued the bonds payable?

2. How much must Savvy pay back at maturity?

3. How much cash interest will Savvy pay each six months?

Short answer

Answer:

Savvy paid $3,500,000 at maturity.

Step-by-step solution

Definition of bond payable

Bond payable is known as a type of liability account. It contains the amount owed bythe bond issuer.

Amount receive on maturity

Savvy has to pay the amount equal to the face value of the bond. Hence, the amount Savvy must pay is $3,500,000.