Question

The fiscal year ends December 31 for Development. Inc. To provide funding for its construction project, Development. Inc. issued -% bonds with a face amount of $---,--- on September 1, 2021.The bonds sold for $---,---, a price to yield the market rate of -%. The bonds mature October 31, 2041 (20 years). Interest is paid semiannually on April 30 and October 31.

On September 1, 2021, would interest have to be accrued from April 30 to September 1? So the interest paid on October 31 will be for the entire 6 months?
Also until October 31, none of this accrued interest will impact the amortization of the bond?

Answer 1

Companys fiscal year end on Dec 31st.

Company has issued bond on Sep 1, 2021.

Interest are paid on semiannual basis on Apr 30, Oct 31

On Sep 1, 2021 there will not be any interest accrued as bonds are just have been issued on that date.

Each year interest paid on apr 30 for ( Nov 1 to Apr 30) and on Oct 31 for ( May 1 to Oct 31). So yes interest paid will be for 6 months.

But company fiscal year ends on dec 31 so interest paid on Apr 30 will include 2 parts: interest accrued in last year Nov 1 to Dec 31 i.e. 2 months and interest expense of current year Jan 1 to Apr 30 i.e. 4 months.

So there will be deferment of interest payment but it will not impact on bond amortization. Bond will be amortized on each interest payment.