Jones Company issued bonds with a $150,000 face value on January 1, 2016. The fi

Question

Jones Company issued bonds with a $150,000 face value on January 1, 2016. The five-year term bonds were issued at 99 and had a 8.00% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information:

1. The amount of interest expense shown on Jones's December 31, 2016 income statement would be: A)$11,700.

B)$12,600.

C)$12,000.

D)$12,300.

2. The total amount of liabilities shown on Jones's December 31, 2017 balance sheet would be:

A)$149,100.

B)$148,500.

C)$147,900.

D)$148,800.

Explanation / Answer

1) Interest expense = Interest paid+discount on bonds amortization

                             = (150000*8%)+(150000*1/100/5)

Interest expense = 12300

so answer is d) $12300

2) Total amount of liabilties :

Bonds payable = 150000

Discount on bonds payable (unamortized) = 1500-600 = 900

Amount of liabilities = (150000-900) = 149100

so answer is a) $149100

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