Question

b.How much is the amortization? c. How much is interest expense? LO5 Straight-Line Method E 10. Nina Corporation issued $8,000,000 in 6 percent, five-year bonds on March 1, 2010, at 92. The semiannual interest payment dates are September 1 and March 1. Prepare entries in journal form for the issue of the bonds by Nina on March 1, 2010, and the first two interest payments on September 1, 2010 and March 1, 201l. Use the straight-line method and ignore year-end accruals. 03 LO5 Effective Interest Method E 11. The Smart Company sold $500,000 of 8 percent, 20-year bonds on April 1, 2011, at 105. The semiannual interest payment dates are March 31 and Septem- ber 30. The market interest rate is 7.5 percent. The company's fiscal year ends 000,020 DO0.00 September 30. Use the effective interest method to calculate the amortization. an1. With regard to the bond issue on April 1, 2011: a. How much cash is received? b.How much is Bonds Payable? c. What is the difference between a andb called and how much is it? 1dslo md

Answer 1

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