** REQUIRED: 1) Determine the following items: a) interest expense reported FYE
ID: 2520317 • Letter: #
Question
** REQUIRED:
1) Determine the following items:
a) interest expense reported FYE 12/31/18. 161400
b) balance of the premium account at 12/31/18. 142400
c) carry value of the bonds at 12/31/19. 3923200
Here are the correct answers. Can you please explain how they were computed.
On 7/1/18, Cardinals Co issued 3,800 of its $1,000 face value, 9%, 8-year bonds at {104} plus accrued interest. The bonds mature on 6/1/26, and pay interest each 6/1 and 12/1. The straight-line method is used to amortize any discount or premium.** REQUIRED:
1) Determine the following items:
a) interest expense reported FYE 12/31/18. 161400
b) balance of the premium account at 12/31/18. 142400
c) carry value of the bonds at 12/31/19. 3923200
Here are the correct answers. Can you please explain how they were computed.
Explanation / Answer
Note
Answer a
Interest expense reported FYE 12/31/18 ( July 2018 to Dec 2018 : 6 months)
= $322,800 * (6 months / 12 months) = $161,400
Answer b
Balance of the premium account at 12/31/18 = Total Premium on bonds - Amortization of premium for 6 months in 2018
= $152,000 - ($19,200 * 6 / 12)
= $152,000- $9,600 = $142,400
Answer c
Carry value of the bonds at 12/31/19 :
Cash received on issue of bonds - Amortization of premium for 6 months in 2018 - Amortization of premium for the year 2019
= $3,952,000 - $9,600 - $19,200 = $3,923,200
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