Part 1:Straight Line method | ||||
Face value of Bond =$8,000,000 | ||||
Issue price of Bond =$8,000,000*92/100 =$7,360,000 | ||||
Discount on Bods =$8,000,000 - $7,360,000 =$640,000 | ||||
Discount amortization of Bond discount =$640,000 / 10 payments =$64,000 | ||||
Cash Interest =$8,000,000*6%*6/12 =$240,000 | ||||
Date | Accounts and explanation | Debit(in $) | Credit(in $) | |
March 1,2010 | Cash | 73,60,000 | ||
Discount on Bonds Payable | 6,40,000 | |||
Bonds Payable | 80,00,000 | |||
(To bonds issued at discount) | ||||
Sept 1,2010 | Interest expenses | 3,04,000 | ||
Interest payable | 2,40,000 | |||
Bond discount | 64,000 | |||
(Interest paid for 6 months ended Sep 1,2010) | ||||
March 1,2010 | Interest expenses | 3,04,000 | ||
Interest payable | 2,40,000 | |||
Bond discount | 64,000 | |||
(Interest paid for 6 months ended march 1,2011) | ||||
Part 2:Effective Interest method | ||||
Face value of Bond =Bonds Payable =$500,000 | ||||
Issue price of Bond =Cash received =$525,000($500,000*105/100) | ||||
Premium on Bonds =$525,000 - $500,000 =$25,000 =Difference between a and b | ||||
b.How much is the amortization? c. How much is interest expense? LO5 Straight-Line Method E 10....
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