MacBride Enterprises sold $200,000 of bonds on December 31, 2018. A portion of t
ID: 2578304 • Letter: M
Question
MacBride Enterprises sold $200,000 of bonds on December 31, 2018. A portion of the amortization table appears below.
Required:
1. Indicate the stated annual interest rate on these bonds.
%
2. Calculate the effective annual interest rate on these bonds. (Note: Round to the nearest 0.1%.)
%
3. Determine the interest expense and premium amortization for the interest period ending December 31, 2020. (Note: Round to the nearest dollar.)
Period Cash
Payment
(Credit) Interest Expense
(Debit) Premium on
Bonds Payable
(Debit) Premium on Bonds
Payable Balance
(Credit) Bond Payable
Carrying Value
(Credit) At issue $6,457 $206,457 06/30/19 $9,000 $8,465 $535 5,922 205,922 12/31/19 9,000 8,443 557 5,365 205,365 06/30/20 9,000 8,420 580 4,785 204,785 12/31/20 ? ? ? ? ?
Explanation / Answer
Answer 1. Half Yearly Interest Rate on Bonds = ($9,000 / $200,000) Half Yearly Interest Rate on Bonds = 4.50% Stated Annual Interest Rate on these Bonds = 4.50% X 2 Stated Annual Interest Rate on these Bonds = 9% per annum Answer 2. Effective Half Yearly Interest Rate = ($8,465 / $206,457) Effective Half Yearly Interest Rate = 4.10% Effective Annual Interest Rate = 4.10% X 2 = 8.20% per annum Answer 3. Period Cash Payment Credit Interest Expense Debit Premium on Bonds Payable (Debit) Premium on Bonds Balance (Credit) Bonds Payable Carrying Value (Credit) At Issue 6,457 206,457 6/30/19 9,000 8,465 535 5,922 205,922 12/31/19 9,000 8,443 557 5,365 205,365 6/30/20 9,000 8,420 580 4,785 204,785 12/31/20 9,000 8,396 604 4,181 204,181
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