A company paid 37800 plus a brokers fee of 525 to acquire 8

A company paid $37,800 plus a broker\'s fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

$37,800.

$38,325.

$40,000.

$40,525.

$43,200.

Solution

When bonds are redeemed at maturity, they\'re always redeemed at face value since by then any bond discount or premium would have become zero, plus the last interest payment.

Dr Cash $41,600 (assuming semi-annual interest payments)
Cr Bonds receivable $40,000
Cr Interest income $1,600