Question

During 2018 and 2019, Kale Co. completed the following transactions relating to its bond issue. The company's fiscal year ends on December 31. 2018 Mar. 1 Issued $360,000 of 8 year, 8 percent bonds for $348,000. The semiannual cash payment for interest is due on March 1 and September 1, beginning September 2018. Sept. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest. Dec. 31 Recognized accrued interest expense including the amortization of the discount. 2019 Mar. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest. Sept. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest. Dec. 31 Recognized accrued interest expense including the amortization of the discount. Required a. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? If the bonds had sold at face value, what amount of cash would Kale Co. have received? b. Prepare the liabilities section of the balance sheet at December 31, 2018 and 2019. c. Determine the amount of interest expense kale would report on the income statements for 2018 and 2019. d. Determine the amount of interest Kale would pay to the bondholders in 2018 and 2019. Complete this question by entering your answers in the tabs below. Reg A Reg B Reg C and D When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? If the bonds had sold at face value, what amount of cash would Kale Co. have received? than the stated rate of interest. Was the market rate of interest Cash received more $ 350,000 ReqA Reg B >

Answer 1

A.
Market rate of interest was more than the stated rate of interest, since bonds are issued at discount
Cash Received = $348000

B.
Discount on issue of bonds = $360000 - $348000 = $12000
Amortization of Discount for every interest = $12000/16 = $750

	2018	2019
Liabilities
Interest Payable	$              9,600	$                9,600
Bonds Payable	$         3,60,000	$          3,60,000
Less : Discount on Bonds Payable	$            10,750	$                9,250
Carrying Value of Bonds Payable	$         3,49,250	$          3,50,750
Total Liabilities	$        3,58,850	$          3,60,350

Calculation

	2018	2019
Liabilities
Interest Payable	=360000*8%*4/12	9600
Bonds Payable	360000	360000
Less : Discount on Bonds Payable	=12000-1500*10/12	=10750-1500
Carrying Value of Bonds Payable
Total Liabilities

C & D

	2018	2019
Interest Expense	$            25,250	$              30,300
Interest Paid	$            14,400	$              28,800

	2018	2019
Interest Expense	=360000*8%*10/12+1500*10/12	=360000*8%+1500
Interest Paid	=360000*8%*6/12	=360000*8%