Question

cupola fan corporation issued 10% 400,000, 10-year bonds for 385000 on June 30, 2021. The debt issue costs were 1500. interest is paid semiannually on December 31 and June 30. one year from the issue date (July 1, 2022). the corporation exercised its call privilege and retired the bonds for 395000. the corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Answer 1

Calculate the amount of cash received = Issue price of bonds - Debt costs

= 3,85,000 - 1,500 = 383,500

So , amount received from issue of bonds payable = 383,500

Calculate the interest , paid semiannually :

Intetrest Expense = (4,00,000 * 10%) * 6/12

= 20,000

Calculations for Amortization of debt costs :

Total cost incurred on issuance of bonds = (15,000 + 1,500 ) = 16,500

Cost amortized annually = 16,500 / 10

= 1,650

Amortization of cost on December 31,2021 and June 30 ,2022 :

Amortization of cost for 6 Months = 1,650 * (6/12)

= 825

Call of the bonds :

Total amount payable on bonds = 383,500 + 825 + 825

= 385,150

Loss on retirement of bonds = 395,000 - 385,150

= $9,850