EX 15-5 Interest on bond investments

On April 1, 2014, Rizzo Company purchased $80,000 of 4.5%, 20-year Energizer Company bonds at their face amount plus one month’s accrued interest. The bonds pay interest on March 1 and September 1. On November 1, 2014, Rizzo Company sold $30,000 of the Energizer Company bonds acquired on April 1, plus two months’ accrued interest. On December 31, 2014, four months’ interest was accrued for the remaining bonds.

Determine the interest earned by Rizzo Company on Energizer Company bonds for 2014.


Answer:

Interest earned (April 1 to September 1)
1
…………………………………………… $1,500
Interest earned on sold bonds (September 1 to November 1)
2
………………… 225
Interest earned on remaining bonds (September 1 to December 31)
3
………… 750
Total interest earned in 2014…………………………………………………………… $2,475
1 $80,000 × 4.5% × 5/12
2 $30,000 × 4.5% × 2/12
3 $50,000 × 4.5% × 4/12