1. Sunland Company received proceeds of $533000 on 10-year, 8% bonds issued on J

Question

1. Sunland Company received proceeds of $533000 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $500000, pay interest annually on December 31st, and have a call price of 104. Sunland uses the straight-line method of amortization. What is the amount of interest expense Sunland will show with relation to these bonds for the year ended December 31, 2017?

a. $42640

b. $36700

c. $30100

d. $40000

a. cause net income for 2017 to be overstated.

b. cause retained earnings at the end of 2017 to be overstated.

c. not affect net income for 2017.

d. cause net income for 2017 to be understated.

Need some help with the ancwers to these, and a brief explanation, thanks

a. $42640

Explanation / Answer

Answer 1-b. $36,700 Interest Expense = ($500,000 X 8%) (Cash Paid) - ($33,000 / 10 Years) (Premium Amortized) Interest Expense = $40,000 - $3,300 Interest Expense = $36,700 Answer 2-d. cause net income for 2017 to be understated. The interest Expense is calculated in case of Bonds Issued at premium: Interest Expense = Cash Interest Paid - Premium Amortized If, the premium is not amortized, then the interest amount will be more than the Interest expense, so the income will be understated ny the amount of premium to be amortized.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.