Reporting Bonds Issued at a Premium (Effective-Interest Amortization)
On January 1,2011. Cron Corporation issued $700,000 in bonds that mature in five years. The bonds have a stated interest rate of 13 percent and pay interest on June 30 and December 31 each year. When the bonds were sold, the market rate of interest was 12 percent. The company uses the effective-interest amortization method.
Required:
1. What was the issue price on January 1. 2011?
2. What amount of interest expense should be recorded on (a) June 30. 2011? and (b) December 31. 2011?
3. What amount of cash interest should be paid on (a) June 30. 2011? and (b) December31. 2011?
4. What is the book value of the bonds on (a) June 30. 2011? and (b) December 31. 2011?
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