Question

On December 1, 2008, C.R. Bard purchased $451,000, 7% bonds, with interest payable on January 1 and July 1, for $343,970, INCLUDING accrued interest. The bonds mature on April 1, 2017. Amortization is recorded using the straight-line method and the bonds are classified as available-for-sale. On December 31, 2011, the bonds were adjusted to their proper carrying value when their fair value was $330,141. The fair market value of the bonds on December 31, 2010 was $316,897. Assuming the bonds were sold on August 1, 2012 for $366,948, PLUS accrued interest, determine the gain or loss on the sale of the bonds? Note: Accrue interest and amortize premium/discount on a monthly basis. Round your answer to the nearest whole dollar. If a gain results, enter your answer as a positive number. If a loss results, place a minus sign '-' prior to the amount of the loss.

Answer 1

C.R Bard Purchased 7% Bond for premium On Dec 1,2008

Purchase price= 451000

Face Value or Par value= 343970

Therefore Premium paid= 451000-343970=107030

interest is paid every Jan 1 & July 1

And one month's interest equals 343970*7%*1/12=2006.5

Maturity of bond in months= Dec 1, 2008 - Apr 1,2017= 112 months

On Aug 1, 2012 , Bard sold Bond that was held by him

sales price =366948 + 2 Months Accrued interest(2006.5*2=4013)=370961

Interest received till date= 2006.5*56=112364

Therefore,

Selling Price - Purchase cost=

=(370961+112364) - 415000

Net gain on Sale = 68325

Effective interest rate = (2006.5*12)-(107030/112) / 415000

= 24078-955.625 / 415000

=5.57%