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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 3 years ago
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