step by step ,how do we find the straight -line for amortization bond preiums or
ID: 2582484 • Letter: S
Question
step by step ,how do we find the straight -line for amortization bond preiums or discount ....max and his connets has $8,000,000 of 9.5%, 7-year bonds dated March 1, with interest payable on March 1 and September 1. The company’s fiscal year ends on November 30th. max and his uses the effective method to amortize bond premiums or discounts.
Assume the bonds were issued at 102.5 on March 1 to yield an effective interest rate of 9.2 percent. Prepare journal entries for March 1, September 1 and November 30.
Assume the bonds were issued at 97.5 on March 1 to yield an effective interest rate of 9.8 percent. Prepare the journal entries for March 1, September 1 and November30.
3. Assume the bonds are issued om June 1 at face value plus accrued interest. Prepare the journal entries for March 1, September 1 and November30
Explanation / Answer
Issue price of the bonds = $ 8,000,000 x 102.5 % = $ 8,200,000
Premium on bonds payable = $ 8,200,000 - $ 8,000,000 = $ 200,000.
n = 7 x 2 = 14
Semiannual amortization of premium = $ 200,000 / 14 = $ 14,285.71
Semiannual coupon = $ 8,000,000 x 9.5% x 1/2 = $ 380,000
Date Account Titles Debit Credit $ $ March 1 Cash 8,200,000 Premium on Bonds Payable 200,000 Bonds Payable 8,000,000 September 1 Interest Expense ( $ 8,200,000 x 9.2% x 1/2) 377,200 Premium on Bonds Payable 2,800 Cash 380,000 November 30 Interest Expense ( 8,200,000 - 2,800) x 9.2% x 3/12) 188,536 Premium on Bonds Payable 1,464 Interest Payable 190,000Related Questions
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