1. On January 1, $808,000, five-year, 10% bonds, were issued for $783,760. Interest is paid semiannually...

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Question

1. On January 1, $808,000, five-year, 10% bonds, were issued for $783,760. Interest is paid semiannually...

1. On January 1, $808,000, five-year, 10% bonds, were issued for $783,760. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize the discount on bonds payable, the semiannual amortization amount is

a.$40,400

b.$4,848

c.$24,240

d.$2,424

2. Bonds Payable has a balance of $991,000 and Premium on Bonds Payable has a balance of $10,901. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

a.$18,829 loss

b.$10,901 loss

c.$1,020,730 gain

d.$10,901 gain

business accounting

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Answer 1

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--Requirement 1 and 2, with calculation and solution

A	Face value	$808,000
B	Issue Price	$783,760
C = A - B	Discount on issue	$24,240
D	No of years	5
E = Dx 2	No of semi annual payments	10
F = C/E	Straight lime semi annual amortisation	$2,424
	Correct Answer	Option 'D' $ 2424

A	Bonds Payable face value	$991,000
B	Unamortised Premium	$10,901
C = A+B	Total Carrying value of Liability	$1,001,901
D = A x 103/100	Cash paid to pay off liability	$1,020,730
E = D - C	Loss on redemption	$18,829
	Correct Answer	Option 'A' $ 18829 Loss

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Answer 2

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1. On January 1, $808,000, five-year, 10% bonds, were issued for $783,760. Interest is paid semiannually...

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