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MC Qu. 111 On January 1 of Year... On January 1 of Year 1, Congo Express...

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Accounting

MC Qu. 111 On January 1 of Year...

On January 1 of Year 1, Congo Express Airways issued $2,700,000of 6% bonds that pay interest semiannually on January 1 and July 1.The bond issue price is $2,450,000 and the market rate of interestfor similar bonds is 7%. The bond premium or discount is beingamortized at a rate of $8,333 every six months. After accruinginterest at year end, the company's December 31, Year 1 balancesheet should reflect total liabilities associated with the bondissue in the amount of:

Multiple Choice:

$2,547,666.

$3,014,334.

$2,385,666.

$2,466,666.

$2,933,334.

MC Qu. 112 On January 1 of Year...

On January 1 of Year 1, Congo Express Airways issued $2,700,000of 7% bonds that pay interest semiannually on January 1 and July 1.The bond issue price is $2,470,000 and the market rate of interestfor similar bonds is 8%. The bond premium or discount is beingamortized at a rate of $7,667 every six months. The amount ofinterest expense recognized by Congo Express Airways on the bondissue in Year 1 would be:

Multiple Choice:

$216,000.

$189,000.

$102,167.

$173,666.

$204,334.

Answer & Explanation Solved by verified expert
4.2 Ratings (922 Votes)

1
Bond discount 2,700,000 -2,450,000          250,000
Balance of bond discount account 250000-8,333 -8,333          233,334
Book value of a bond = Face value - Unamortized discount 2,700,000-233334 2466666
2,700,000*6%*6/12 81000
Total liabilities = Book value of the bonds + interest payable 2466666+94500      2,547,666
Ans:Option A                        2,547,666
2
The amount of interest expense recognized by Congo Express Airways on the bond issue Year 1 would be
Cash paid every six months 2,700,000*7%*6/12 94500
Discount amortization every six months 7,667
Interest Expense (94500+7667)*2          204,334
Ans:Option E 204334

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