Question
In: Accounting
Jones Company issued bonds with a $120,000 face value on January 1 Year 1
Jones Company issued bonds with a $120,000 face value on January 1 Year 1. The five-year term bonds were issued at 99 and had a 850% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:
Solutions
Expert Solution
Carrying value of the bonds = $120,000/100*99 = $118,800
Bond discount = $120,00 - $118,800 = $1,200
Bond discount amortization each year = $1,200 / 5 = $240
Interest expense = (face value of the bond * stated interest rate) + Bond discount amortization
= ($120,000*8.5%) + $240
= $10,440
Answer:
The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:
$10,440
The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:
$10,440
S Mahalaxmi answered 2 years agoRelated Solutions
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