(a) Shamrock Co. sold $1,830,000 of 10%, 10-year bonds at 106 on January 1, 2017

Question

(a) Shamrock Co. sold $1,830,000 of 10%, 10-year bonds at 106 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Shamrock uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017. (Round answer to 0 decimal places, e.g. 38,548.)

(b) Bridgeport Inc. issued $550,000 of 9%, 10-year bonds on June 30, 2017, for $515,729. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Bridgeport uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

Explanation / Answer

a) bonds issue price (1,830,000*1.06)= 1939800 bonds face value 1,830,000 premium on bonds 109,800 premium amortized         = 109,800/20 5490 interest expense to be recorded interest paid (1,830,000*10%*1/2)= 91500 less:Premium amortized 5,490 interest expense to be recorded 86,010 answer b) interest expense to be recorded 515,729*10%*4/12 17191 answer

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