Marillion Company issued $900,000 of 10% bonds at 108. Interest is paid annually

Question

Marillion Company issued $900,000 of 10% bonds at 108. Interest is paid annually and the effective interest method is used for amortization of any premium or discount. The bonds are dated 7/1/16 and the market rate of interest on that day was 8%.

Prepare a schedule showing the computation of each of the following:

1) What was the selling price of the bonds?

2) How much interest is paid to the bondholders on each interest payment date?

3) How much is the interest expense to be recorded on the second interest payment date?

4) How much is the premium or discount amortization on the second interest payment date, if any?

5) If the bonds are redeemed at 109 by Marillion Company on 7/1/18 just after the second interest payment, what is the gain or loss on the redemption of the bonds?

Explanation / Answer

Note : As per Chegg Policy only 4 Part can be solved

1. Calculation of Amount received for the bonds: Par Value of Bonds $900,000 Par Value per bond (Assumed) $100 Number of Bonds issued = $900000 / $100 = 9000 Issue Price of a bond = $108 Amount received for the bonds = 9000 * $108= $972,000

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