In: Accounting
1. On January 1, 2020, Scottsdale Company issued its 12% bonds in the face amount of $3,000,000, which mature on January 1, 2032. The bonds were issued for $$3,408,818 to yield 10%. Scottsdale uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. The 12/31/23 Premium on Bond Payable balance is:
(show computations)
Year | Cash Interest | Interest Expenses | Premium amortised | Unamortized Premium Balance |
(a) | (b) | (c ) | (d=b-c) | (e=op. bal.- d) |
Beg. Balance | - | - | - | 4,08,818 |
31 Dec., 2020 | 3,60,000 | 3,40,882 | 19,118 | 3,89,700 |
31 Dec., 2021 | 3,60,000 | 3,06,794 | 53,206 | 3,36,493 |
31 Dec., 2022 | 3,60,000 | 2,76,114 | 83,886 | 2,52,608 |
31 Dec., 2023 | 3,60,000 | 2,48,503 | 1,11,497 | 1,41,110 |
So, premium on bond payable balance is $ 1,41,110 | ||||
Working Notes: | ||||
b) Cash Interest (3000000 x 12%) = $ 3,60,000 | ||||
c) Interest expenses on issued value | ||||
31 Dec., 2020 | (3408818*10%) | 3,40,882 | ||
31 Dec., 2021 | ((3408818-340882)*10%) | 3,06,794 | ||
31 Dec., 2022 | ((3408818-340882-306794)*10%) | 2,76,114 | ||
31 Dec., 2023 | ((3408818-340882-306794-276114)*10%) | 2,48,503 | ||