On April 1, 2016, 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, 2016, Rizzo Company sold $30,000 of the Energizer Company bonds acquired on April 1, plus two month’s accrued interest. On December 31, 2016, four month’s interest was accrued for the remaining bonds.
Determine the interest earned by Rizzo Company on Energizer Company bonds for 2016. Do not round interim computations and round final answer to nearest dollar.
Three interest components make up the interest earned in this exercise.
Apr. 1 to Sep. 1: Bond purchase amount x interest x [(6 months – 1 months accrued at purchase) / 12 months)]
Sep. 1 to Nov. 1: Sold bond amount x interest x (2 months / 12 months)
Sep. 1 to Dec. 31: [(Original bond purchase less sold bonds) x interest x (4 months / 12 months)
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