Golden Corporation has $20,000,000 of 10.5 percent, 20- year bonds dated June 1,

Question

Golden Corporation has $20,000,000 of 10.5 percent, 20- year bonds dated June 1, 2010, with interest payment dates of May 31 and November 30. After ten years the bonds are callable at 104, and each $1,000 bond is convertible into 25 shares of $20 per value of common stock. The company's fiscal year ends on December 31. It uses the straight-line method to amortize bond premiums or discounts. d. With regard to the bond interest payment on November 30, 2010:

1. Assume the bonds are issued at 97 on June 1, 2010.

a. How much cash is received?

b. How much is Bonds Payable?

c. What is the difference between a and b called and how much is it?

d. With regard to the bond interest payment on November 30, 2010:

(1) How much cash is paid in interest?

(2) How much is the amortization?

(3) How much is interest expense?

Explanation / Answer

1)a cash received = 20,000,000 * .97 =$ 19,400,000

b) Bond payable = 20,000,000

c)Discount on bond payable = 20,000,000 - 19,400,000 = $600,000

2) Interest is paid in cash = 20,000,000 * .105 *6/12 =$ 1,050,000

b)Amortization = 600,000 / 20 = 30000 per year

amotization for 6 month = 30000 *6/12 = $15000

c)Interest expense = 1,050,000 + 15000 = $ 1065000

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