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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

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(92000*6%*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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