) Windsor Co. sold $1,940,000 of 10%, 10-year bonds at 104 on January 1, 2017. The...

) Windsor Co. sold $1,940,000 of 10%, 10-year bonds at 104 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Windsor uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017.

Sheridan Inc. issued $590,000 of 9%, 10-year bonds on June 30, 2017, for $553,237. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Sheridan uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017.

Solutions

Expert Solution

Answer to Question 1:

Face Value of Bonds = $1,940,000

Issue Value of Bonds = 104% * Face Value of Bonds
Issue Value of Bonds = 104% * $1,940,000
Issue Value of Bonds = $2,017,600

Premium on Bonds Payable = Issue Value of Bonds - Face Value of Bonds
Premium on Bonds Payable = $2,017,600 - $1,940,000
Premium on Bonds Payable = $77,600

Annual Coupon Rate = 10%
Semiannual Coupon Rate = 5%
Semiannual Coupon = 5% * $1,940,000
Semiannual Coupon = $97,000

Time to Maturity = 10 years
Semiannual Period = 20

Semiannual Amortization of Premium = Premium on Bonds Payable / Semiannual Period
Semiannual Amortization of Premium = $77,600 / 20
Semiannual Amortization of Premium = $3,880

Semiannual Interest Expense = Semiannual Coupon - Semiannual Amortization of Premium
Semiannual Interest Expense = $97,000 - $3,880
Semiannual Interest Expense = $93,120

Interest expense reported on July 1, 2017 and December 31, 2017 is $93,120

ekkarill92 answered 1 year ago

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