In: Accounting
Par value of the bonds=$ 300000 | ||
Selling price or issue price=$ 325591 | ||
Stated rate on the bonds=8% | ||
Selling price or issue price=$ 325591 | ||
Par value of the bonds=$ 300000 | ||
Since issue price > Par value,bonds are sold at premium | ||
Premium=Selling price-Par value=325591-300000=$ 25591 | ||
Interest expense that will be recognized on June 30, 2019=Selling price*Stated rate*(6/12)=325591*8%*(6/12)=$ 13024 | ||
(Interest computed for 6 months-Jan 1 to June 30) | ||
Amount of cash that will be paid on June 30, 2019=Par value*Market rate*(6/12)=300000*6%*(6/12)=$ 9000 | ||
Amortization of premium on June 30, 2019=Interest expense that will be recognized on June 30, 2019-Amount of cash that will be paid on June 30, 2019 | ||
Amortization of premium on June 30, 2019=13024-9000=$ 4024 | ||
Ending balance in the premium account on June 30, 2019=Premium on isse date-Amortization of premium on June 30, 2019=25591-4024=$ 21567 | ||
Carrying value of the bonds on June 30, 2019=Selling price-Amortization of premium on June 30, 2019=325591-4024=$ 321567 | ||