A company with an annual accounting year ending on December 31 issued bonds on J

Question

A company with an annual accounting year ending on December 31 issued bonds on January 1 in the amount of $500,000 maturing in 10 years with interest payable each June 30 and December 31 at a 6% annual rate. The company uses straight-line amortization for any bond discounts or premiums. Required: Provide the following amounts to be reported in the company financial statements at the end of year one under each scenario. Issued at Par Issued at 99 Issued at 102 Interest expense Bonds payable Unamortized premium or discount Net bond liability Cash interest paid

Explanation / Answer

I believe I already answered this one a moment ago, but just in case this is a new person: Issued at Par Interest expense 30000 Bonds payable 500000 Unamortized premium or discount 0 Net bond liability Cast interest paid 30000 (500000*.06) Issued at 99 (Discount = 500000*.01 = 5000) Interest expense 30500 (30000+[5000/10]) Bonds payable 500000 Unamortized premium or discount 4500 Net bond liability 495500 (500000-4500) Cast interest paid 30000 (500000*.06) Issued at 102 (Premium = 500000*.02 = 10000) Interest expense 29000 (30000-(10000/10)) Bonds payable 500000 Unamortized premium or discount 9000 Net bond liability 509000 (500000+9000) Cast interest paid 30000 (500000*.06) Good luck with your studies.

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