MC Qu. 120 A company issued... A company issued 5-year, 6% bonds with a par value...

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Accounting

MC Qu. 120 A company issued...
A company issued 5-year, 6% bonds with a par value of $92,000.The company received $89,947 for the bonds. Using the straight-linemethod, the amount of interest expense for the first semiannualinterest period is:
Multiple Choice:
$5,520.00.
$5,930.60.
$2,554.70.
$2,965.30.
$2,760.00.
MC Qu. 122 A company issued...
A company issued 11%, 5-year bonds with a par value of $150,000.The market rate when the bonds were issued was 12%. The companyreceived $144,481 cash for the bonds. Using the effective interestmethod, the amount of interest expense for the first semiannualinterest period is:
Multiple Choice:
$8,250.00.
$8,668.86.
$17,337.72.
$9,000.00.
$16,500.00.

Answer & Explanation Solved by verified expert

4.1 Ratings (723 Votes)

solution:

(a)

A company issued 5years 6% bonds with par value $92000 and received $89947.

The differnce amount is $92000-$89947 =$ 2053

therefore 2053 will be discount.

during the life of bonds the discount amount would be amortized.

therefore anual amortizition = 2053/5 =410.6.3

the amount of interest expense for the first semi anual interest period :

iinterest on bonds(920006%1/2)	2760
discount amortization(410.60/2)	205.3
total interest expense	$2965

the amount of interest expense for the first semiannual interest period is $2965.

(b)

FV=150000+12% *6% =10080

date	opening balance	12%/2
A	B	C	D=B*C	E=FV*C	F=E-D	CLOSING BALANCE
30/6/2015	144481	6	8668	10080	1412	143069
31/12/2015	143069	6	8584	10080	1495	141574
30/6/2016	141574	6	8494	10080	1585	139988
31/12/2016	139988	6	8399	10080	1680	138307
30/6/2017	138307	6	8298	10080	1781	136525
31/12/2017	136525	6	8191	10080	1888	134636
30/6/2018	134636	6	8078	10080	2001	132634
31/12/2018	132634	6	7958	10080	2121	130512
30/6/2019	130512	6	7830	10080	2249	128262
31/12/2019	128262	6	7695	10080	2384	125872

the amount of interest expense for the first semiannual interest period is $8668

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MC Qu. 120 A company issued... A company issued 5-year, 6% bonds with a par value...

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Accounting

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