Question

On January 1, 2013, shay issues $370,000 of 12%, 12-year bonds at a price of 97.50. Six years later, on January 1, 2019, Shay retires 20% of these bonds by buying them on the open market at 105.00. All interest is accounted for and paid through December 31, 2018, the day before the purchase The straight-line method is used to amortize any bond discount.

How much does the company receive when it issues the bonds on January 1, 2013?

What is the amount of the discount on the bonds at January 1, 2013?

How much amortization of the disount is recorded onthe bonds for the entire period from january 1, 2013 through december 31, 2018?

Answer 1

Answer:

1.)

Cash proceeds from sale of bonds at issuance ($370000*97.50%)=$360750

2.)

Discount at Issuance
Par Value	$370000
Cash issue price	(360750)
Discount at issuance	$9250

3.)

The first six years (from 1/1/2013 to 12/31/18) equals 50% of the bonds 12 year life. Therefore the total amortization equals 50% of the total discount (since straight line amortization is being used ) Which is used $9250*50% or $4625