Emma Company purchased a machine from Noah Corporation on October 31, 2016. In p

Question

Emma Company purchased a machine from Noah Corporation on October 31, 2016. In payment for the $234,000 purchase, Emma issued a one-year installment note to be paid in equal monthly payments of $20,791 at the end of each month. The payments include interest at an annual rate of 12%. When recording the November 30, 2016 payment, the debit to Notes Payable will be $_ on 13 0 out of 0.2 points Enterprise Group issued $100,000 of 4-year, 6% bonds outstanding on December 31, 2015 for $103,000. Enterprise uses straight-line amortization. On April 1, 2016, $50,000 of the bonds were retired at 96. What is the book value of the bonds sold on April 1? on 14 0 out of 0.2 points On January 1, 2016, Solo Inc. issued 208,000 of its 6% bonds at 104. Interest is payable semiannually on January 1 and July 1. The bonds mature in ten years. Solo uses straight-line amortization. The amount of interest expense for the year is:

Explanation / Answer

1)

Interest for the first month = 234000*12%*1/12 = 2340

Equal monthly payments = 20791

Debit to Notes payable as on 30 November, 2016 = 20791 - 2340 = 18451

Note : It is assumed that annual interest rate of 12% is compounded at every month. So, monthly interest rate is 12%/12 = 1%

2)

Face Value of Bond = 100000

Issue Price of Bond = 103000

Premium on issue of Bond = 103000 - 100000 = 3000

Maturity of Bond = 4 years i.e. 48 months

Straight line amortisation per month = 3000/48= 62.5

Face Value of Bond retired as on April 1, 2016 = 50000

Amount of amortisation on sold bonds = 62.5*50%*3 = 93.75

Premium amount left to amortised on sold bonds = 3000*50% - 93.75 = 1406.25

Book Value of Bond sold as on April 1,2016 = Face Value of Bond retired as on April 1, 2016 + Premium amount left to amortised on sold bonds

= 50000 + 1406.25 = 51406.25

3)

Issue price of Bonds (Book Value) = Number of Bonds*Issue Price = 208000*104 = 21632000

Face Value of Bonds = 208000*100 = 20800000

Premium on issue of bonds = 21632000 - 20800000 = 832000

Cash paid to Bond holders in the first half year = 20800000*6%*1/2 = 624000

Straight line amortisation for the first half year = 832000/20 =41600

Interest expense for the first half year = 624000 - 41600 = 582400

Cash paid to Bond holders in the second half year = 20800000*6%*1/2 = 624000

Straight line amortisation for the second half year = 832000/20 =41600

Interest expense for the second half year = 624000 - 41600 = 582400

Total interest expense for the year = 582400 + 582400 = 1164800

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