A $100,000 bond payable is issued on June 1, 20X1 at 106. The bond comes due...
A $100,000 bond payable is issued on June 1, 20X1 at 106.
The bond comes due in exactly 5 years.
The bond pays annual cash interest of 12% with payments every June 1 and December 1.
Assuming the straight-line method is being used, how much (rounded) should be reported for the liability as of December 31, 20X1?
Homework Answers
Solution:
Issue price of bond = $100,000*106%= $106,000
Premium on issue of bond = $106,000 - $100,000 = $6,000
Premium amortization in 20X1 = $6,000/5*7/12 = $700
Bond liability to be reported as of December 31, 20X1 = $106,000 - $700 = $105,300
Interest payable to be reported on December 31, 20X1 = $100,000*12%*1/12 = $1,000
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