Grider Industries issued $10,000,000 of 8% debentures on May 1, 2014 and receive
ID: 2472251 • Letter: G
Question
Grider Industries issued $10,000,000 of 8% debentures on May 1, 2014 and received cash totaling $8,872,628. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2022. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 10%. Calculate the total dollar amount 1. interest expense and 2. discount or premium amortization during the years ended December 31, 2014, 2015, 2015. Show computations
Explanation / Answer
Prepare the amortization table:
Date
Interest
payment
stated
4% * Face value
Interest expenses
Mkt 5%*Previous
BV in G
Amortization
of bond discount
C minus B
Debit balance
in the account
bond discount
Credit balance
in the account
Bonds payable
Book value
of the bonds
F minus E
May 1, 2014
$ 1,127,372
$ 10,000,000
$ 8,872,628
Nov1, 2014
$ 400,000
$ 443,631
$ 43,631
$ 1,083,741
$ 10,000,000
$ 8,916,259
May 1, 2015
$ 400,000
$ 445,813
$ 45,813
$ 1,037,928
$ 10,000,000
$ 8,962,072
Nov1, 2015
$ 400,000
$ 448,104
$ 48,104
$ 989,824
$ 10,000,000
$ 9,010,176
May 1, 2016
$ 400,000
$ 450,509
$ 50,509
$ 939,315
$ 10,000,000
$ 9,060,685
Nov1, 2016
$ 400,000
$ 453,034
$ 53,034
$ 886,281
$ 10,000,000
$ 9,113,719
May 1, 2017
$ 400,000
$ 455,686
$ 55,686
$ 830,595
$ 10,000,000
$ 9,169,405
Nov1, 2017
$ 400,000
$ 458,470
$ 58,470
$ 772,125
$ 10,000,000
$ 9,227,875
May 1, 2018
$ 400,000
$ 461,394
$ 61,394
$ 710,731
$ 10,000,000
$ 9,289,269
Nov1, 2018
$ 400,000
$ 464,463
$ 64,463
$ 646,268
$ 10,000,000
$ 9,353,732
May 1, 2019
$ 400,000
$ 467,687
$ 67,687
$ 578,581
$ 10,000,000
$ 9,421,419
Nov1, 2019
$ 400,000
$ 471,071
$ 71,071
$ 507,510
$ 10,000,000
$ 9,492,490
May 1, 2020
$ 400,000
$ 474,625
$ 74,625
$ 432,885
$ 10,000,000
$ 9,567,115
Nov1, 2020
$ 400,000
$ 478,356
$ 78,356
$ 354,530
$ 10,000,000
$ 9,645,470
May 1, 2021
$ 400,000
$ 482,274
$ 82,274
$ 272,256
$ 10,000,000
$ 9,727,744
Nov1, 2021
$ 400,000
$ 486,387
$ 86,387
$ 185,869
$ 10,000,000
$ 9,814,131
May 1, 2022
$ 400,000
$ 490,707
$ 90,707
$ 95,163
$ 10,000,000
$ 9,904,837
Nov1, 2022
$ 400,000
$ 495,242
$ 95,242
$ -
$ 10,000,000
$10,000,000
1.
Calculate the interest expense:
Interest expenses are $6,800,000.
2.
The bonds are issued at discount $1,127,372 ($100,000,000 - $8,872,628) amortization discount at 2014 and 2015 are $43,631, $45,813 and $48,104, $50,509.
Date
Interest
payment
stated
4% * Face value
Interest expenses
Mkt 5%*Previous
BV in G
Amortization
of bond discount
C minus B
Debit balance
in the account
bond discount
Credit balance
in the account
Bonds payable
Book value
of the bonds
F minus E
May 1, 2014
$ 1,127,372
$ 10,000,000
$ 8,872,628
Nov1, 2014
$ 400,000
$ 443,631
$ 43,631
$ 1,083,741
$ 10,000,000
$ 8,916,259
May 1, 2015
$ 400,000
$ 445,813
$ 45,813
$ 1,037,928
$ 10,000,000
$ 8,962,072
Nov1, 2015
$ 400,000
$ 448,104
$ 48,104
$ 989,824
$ 10,000,000
$ 9,010,176
May 1, 2016
$ 400,000
$ 450,509
$ 50,509
$ 939,315
$ 10,000,000
$ 9,060,685
Nov1, 2016
$ 400,000
$ 453,034
$ 53,034
$ 886,281
$ 10,000,000
$ 9,113,719
May 1, 2017
$ 400,000
$ 455,686
$ 55,686
$ 830,595
$ 10,000,000
$ 9,169,405
Nov1, 2017
$ 400,000
$ 458,470
$ 58,470
$ 772,125
$ 10,000,000
$ 9,227,875
May 1, 2018
$ 400,000
$ 461,394
$ 61,394
$ 710,731
$ 10,000,000
$ 9,289,269
Nov1, 2018
$ 400,000
$ 464,463
$ 64,463
$ 646,268
$ 10,000,000
$ 9,353,732
May 1, 2019
$ 400,000
$ 467,687
$ 67,687
$ 578,581
$ 10,000,000
$ 9,421,419
Nov1, 2019
$ 400,000
$ 471,071
$ 71,071
$ 507,510
$ 10,000,000
$ 9,492,490
May 1, 2020
$ 400,000
$ 474,625
$ 74,625
$ 432,885
$ 10,000,000
$ 9,567,115
Nov1, 2020
$ 400,000
$ 478,356
$ 78,356
$ 354,530
$ 10,000,000
$ 9,645,470
May 1, 2021
$ 400,000
$ 482,274
$ 82,274
$ 272,256
$ 10,000,000
$ 9,727,744
Nov1, 2021
$ 400,000
$ 486,387
$ 86,387
$ 185,869
$ 10,000,000
$ 9,814,131
May 1, 2022
$ 400,000
$ 490,707
$ 90,707
$ 95,163
$ 10,000,000
$ 9,904,837
Nov1, 2022
$ 400,000
$ 495,242
$ 95,242
$ -
$ 10,000,000
$10,000,000
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