3 Required information IThe following information applies to the questions displ

Question

3 Required information IThe following information applies to the questions displayed below] On January 1, 2017, Shay issues S400.000 of 10%, 12-year bonds at a price of 9775 Six years later, on January 1, 2023. Shay retires 25% of these bonds by buying them on the open market at 104 75. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount Pert 1 of7 1. How much does the company receive when it issues the bonds on January 1, 2017? from sale of bonds at issuance Prey of 9 ??? Next >

Explanation / Answer

Ans)

1) Cash proceeds from sale of bonds = 400,000 X 97.75 % = 391,000

2) Discount = 400,000 - 391,000 = 9000

3) Amortisation expense = 9000 X 50% = 4500

the first 6 years ( from 1/1/2017 to 31/12/2022 equals 50% of the bonds 12 year life. therefore amortisation equals 50% of the total discount

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