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1. On January 1, 2020, Scottsdale Company issued its 12% bonds in the face amount of...

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)

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Expert Solution

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

ekkarill92 answered 1 year ago
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