On August 1, John issued a $600,000, semi-annual, 5 year, 3.5% bond. The market rate for...
On August 1, John issued a $600,000, semi-annual, 5 year, 3.5% bond. The market rate for similar bonds on that day was 4.0%. John uses the effective interest method to record the amortization of discounts. He has decided to report net bonds on the balance sheet, instead of reporting the bond and its discount separately.
What does net bonds look like on the balance sheet and how do I get it from bonds payable and discounts?
Homework Answers
| Total interest on issued bond @ 3.5% | 600000*10*3.5% = | 210000 | ||
| Total interest on similar bond @ 4% | 600000*10*4% = | 240000 | ||
| Discount on issue | 210000-240000 = | 30000 | ||
| So net bond on book will be | 600000-30000 = | 570000 | ||
| we have to deduct the discount from bond value to get the net bond value | ||||
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