Question

Vaughn Industries, Inc. issued $16,200,000 of 8% debentures on May 1, 2020 and received cash totaling $14,373,657. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2025. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10%.

Calculate the total dollar amount of discount or premium amortization during the first year (5/1/20 through 4/30/21) these bonds were outstanding. (Round answers to 0 decimal places, e.g. 5,275.)

Date	Interest Expense	Cash Interest	Discount Amortized	Carrying Value of Bonds
5/1/20				$
11/1/20	$	$	$
5/1/21
Total			$

Answer 1

Solution

Date	Interest	Cash	Discount	Carrying
	Expense	Interest	Amortized	Value of Bonds
5/1/2020				$     14,373,657
11/1/2020	$   718,683	$     648,000	$        70,683	$     14,444,340
5/1/2021	$   722,217	$     648,000	$        74,217	$     14,518,557
Total	$ 1,440,900	$ 1,296,000	$       144,900	$     14,663,457