So I\'m not sure about the first two answers and need help with the third. Foley
ID: 2574442 • Letter: S
Question
So I'm not sure about the first two answers and need help with the third.
Foley Company issued $2,000,000 of 6%, 5-year bonds at 98, which pay interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds? $600,000 $640,000 $560,000 $580,000 Larson Company issued $1,000,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, what is the amount of the amortization at each interest payment point? $6,000 $12,000 C $80,000 $68,000 Sparks Company received proceeds of $634,500 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $600,000, pay interest annually orn December 31st, and have a call price of 102. Sparks uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2018? O $600,000 $627,600 C $572,400 $631,050 (Ctrl)Explanation / Answer
Solution:
Part 1 ---
Since the bonds are issued at 98 (or 98%) of face value. It is issued at discount since the issue price is less than face value.
Issue Price of the bonds = face value $2,000,000 x 98% = $1,960,000
Discount on Bonds Payable = 2,000,000 – 1,960,000 = $40,000
Annual Cash Interest Payment = Face Value x Coupon Rate = 2,000,000 x 6% = $120,000
Total Cash Interest Payment over the life of the bonds = Annual Interest Payment $120,000 x Period to Maturity 5 = $600,000
Total Interest Cost over the period of Bonds = Total Cash Interest Payment over the life of bonds + Amortization of Discount on Bonds Payable over the life of bond
= $600,000 + $40,000
= $640,000
Hence, the correct option is $640,000
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining part.
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