(a) Sheffield Co. sold $2,120,000 of 12%, 10-year bonds at 103 on January 1, 201

Question

(a) Sheffield Co. sold $2,120,000 of 12%, 10-year bonds at 103 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Sheffield uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017. (Round answer to 0 decimal places, e.g. 38,548.)

(b) Tamarisk Inc. issued $580,000 of 9%, 10-year bonds on June 30, 2017, for $480,209. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Tamarisk uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

Explanation / Answer

a Premium on bonds payable=(2120000*1.03)-2120000=$63600 Interest expense to be recorded=(2120000*12%/2)-(63600/20)= $124020 b Interest expense to be recorded =480209*12%/12*4= $19208

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