Exercise 14-8 Presented below are three independent situations. (a) Metlock Co.

Question

Exercise 14-8

Presented below are three independent situations.

(a) Metlock Co. sold $2,060,000 of 12%, 10-year bonds at 104 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Metlock 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.)

Interest expense to be recorded$??

(b) Bonita Inc. issued $600,000 of 8%, 10-year bonds on June 30, 2017, for $462,358. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Bonita 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.)

Interest expense to be recorded??

Explanation / Answer

Solution :

(a) interest Expense to be reported on

July 1, 2017 = $2,060,000 x 12% x 6/12 = $123,600

Dec 31, 2017 = $2,060,000 x 12% x 6/12 = $123,600

(b) interest expense to be recorded on

Oct 31, 2017 = $600,000 x 8% x 4/12 = $16,000

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