Bush Company authorized $150,000 of 5-year bonds dated January 1, 20X1. The stat
ID: 2584586 • Letter: B
Question
Bush Company authorized $150,000 of 5-year bonds dated January 1, 20X1. The stated rate of interest was 14%, payable each June 30 and December 31. The bonds were issued on January 1, 20X1, when the market interest rate was 12%. Assume effective-interest amortization. (The present value factor for $1 at 6% for 10 periods is 0.5584, for $1 at 7% for 10 periods is 0.5083, for $1 at 14% for 5 periods is 0.5194, and for $1 at 12% for five periods is 0.5674. The present value of an annuity of $1 for 10 periods at 6% is 7.3601, for 10 periods at 7% is 7.0236, for 5 periods at 6% is 4.2124, and for 5 periods at 7% is 4.1002.) Round to the nearest dollar.
(a) What would be the amount of premium amortization for June 30, 20X1?
(b) What would be the amount of premium amortization for December 31, 20X1?
(c) What would be the amount of the interest payment on June 30, 20X1?
(d) What would be the amount of the interest payment on December 31, 20X1?
Explanation / Answer
Amount PV factor Present value Interest 10500 7.3601 77281 Principal 150000 0.5584 83760 Issue price 161041 Cash interest Interest expense Premium amortization Carrying value January 1, 20X1 161041 June 30, 20X1 10500 9662 838 160203 December 31, 20X1 10500 9612 888 159315 a Amount of premium amortization for June 30, 20X1 = $838 b Amount of premium amortization for December 31, 20X1 = $888 c Amount of the interest payment on June 30, 20X1 = $10500 d Amount of the interest payment on December 31, 20X1 = $10500
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