lnoile Bond discount by the straight-line method) On Janarys were Inc., issued f
ID: 2557227 • Letter: L
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lnoile Bond discount by the straight-line method) On Janarys were Inc., issued five-year, 7% bonds payable with a face value of $10,000,000. The bon issued at 96 and pay interest on January 31 and July 31. Danvers Logistics, Inc., and discount by the straight-line method. Record (a) issuance of the bonds on January (b) the semiannual interest payment and amortization of bond discount on July 31, amortizes bond (c) the interest accrual and discount amortization on December 31,2016. 31, 2016 E9-30A. (Learning Objective 2: Measure cash amounts fo 2 r a bond payable (premium) 000 of 7% debenture bonds outstanding. The bonds were issued at 103 in 2016 and mature in bonds have annual interest payments. Requirements 1. How much cash did County Bank receive when it issued these bonds? 2. How much cash in total will County Bank pay the bondholders through the maturity date 2036. The of the bonds? 3. Calculate the difference between your answers to requirements 1 and 2. This difference represents County Bank's total interest expense over the life of the bonds 4. Compute County Bank's annual interest expense by the straight-line amortization method. Multiply this amount by 20. Your 20-year total should be the same as your answer to E9-31A. (Learning Objective 3: Issue bonds payable (discount); record interest payments and issue $2,000,000 of 3%, 10-year bonds payable On December 31, 2016, when the market interes requirement 3 the related bond amortization using the effective-interest method) Score Ltd. is authorized to rate is 7%, the company issues $1.600.000 of the bonds. Score Ltd. amortizes bond discount b tha effective interest method. The semiannual interest dates are June 30 and December 3Explanation / Answer
Value of Debenture Bonds
$ 300,000
Coupon Rate
7%
Par Value of Debenture Bonds
$ 100
Issue Year
2016
Issue Price
$ 103
Redemption Year
2036
1. Cash received at the time of issue
= 300000 * 103 / 100
$ 309,000
2. Total Cash paid to Bondholders till Maturity
Annual Interest
= 300000 * 7%
$ 21,000
p.a.
Interest for 20 years
= 21000 * 20
$ 420,000
Amount paid at redemption
$ 300,000
Total Cash paid to Bondholders till Maturity
= 420000 + 300000
$ 720,000
3. Difference between the above answers
= 720000 - 309000
$ 411,000
4. Annual Interest Expense by Straight line amortisation method
Annual Interest
$ 21,000
Premium amount
= 309000 - 300000
$ 9,000
Premium amortised using Straight line method
= 9000 / 20
$ 450
Annual Interest Expense by Straight line amortisation method
= 21000 - 450
$ 20,550
Multiply this amount by 20
= 20550 * 20
$ 411,000
Value of Debenture Bonds
$ 300,000
Coupon Rate
7%
Par Value of Debenture Bonds
$ 100
Issue Year
2016
Issue Price
$ 103
Redemption Year
2036
1. Cash received at the time of issue
= 300000 * 103 / 100
$ 309,000
2. Total Cash paid to Bondholders till Maturity
Annual Interest
= 300000 * 7%
$ 21,000
p.a.
Interest for 20 years
= 21000 * 20
$ 420,000
Amount paid at redemption
$ 300,000
Total Cash paid to Bondholders till Maturity
= 420000 + 300000
$ 720,000
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