Question

Question 7 O out of 0.5 points On January 1, 2019, Solo Inc. issued $271,000 of its 7% bonds at 93. Interest is payable semiannually on January 1 and July 1. The bonds mature in ten years. Solo uses straight-line amortization. The amount of interest expense for the year is: Question 8 0 out of 0.5 points Pope Industries purchased a machine from Fitz Corporation on October 1, 2016. In payment for the $211,000 purchase, Pope issued a two year installment note to be paid in equal quarterly payments at the end of X each quarter. The payments include interest at an annual rate of 1296. Each installment payment will be $ Question 9 O out of 0.5 points On April 1 of the current year, Kate Corp. issued $105,000 of 5% bonds payable at par with interest payment dates of March 1 and September 1. In its income statement for the current year ended December 31, what amount X of interest expense should Kate report? Question 10 O out of 0.5 points Ava, Inc., issued 7% bonds, dated January 1, with a face amount of $356,500 on January 1, 2016 for an issue price of 89. The bonds mature on December 31, 2025 (10 years). For bonds of similar risk and maturity the market yield is 9%. X Interest is paid annually on December 31. What is the carrying value of the bond on December 31,2016? Saturday, September 19, 2020 2:33:41 PM CDT

Answer 1

Answer to Question 7:

Face Value of Bonds = $271,000

Issue Value of Bonds = 93% * Face Value of Bonds
Issue Value of Bonds = 93% * $271,000
Issue Value of Bonds = $252,030

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $271,000 - $252,030
Discount on Bonds = $18,970

Annual Coupon Rate = 7.00%
Semiannual Coupon Rate = 3.50%
Semiannual Coupon = 3.50% * $271,000
Semiannual Coupon = $9,485

Time to Maturity = 10 years
Semiannual Period = 20

Semiannual Amortization of Discount = Discount on Bonds / Semiannual Period
Semiannual Amortization of Discount = $18,970 / 20
Semiannual Amortization of Discount = $948.50

Semiannual Interest Expense = Semiannual Coupon + Semiannual Amortization of Discount
Semiannual Interest Expense = $9,485.00 + $948.50
Semiannual Interest Expense = $10,433.50

Interest Expense for the year is $20,867 ($10,433.50 + $10,433.50).