Question

A company issues $17,200,000, 5.8%, 20-year bonds to yield 6% on January 1, Year 7. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16,802,426. Using straight-line amortization, what is the interest expense in Year 8 and what is the carrying value of the bonds on December 31, Year 9?

Record journal entries as well

Answer 1

Answer
Year 8
Interest Expenses= Interest payment (Stand Rate) +/- Amortization of discount/premium
=	$17,200,000*5.8% +($17,200,000-$16,802,426)/20
=	$997,600 + $19,878.7
=	$1,017,478.70
Carrying value equals the face value of bond and remaining premium to be amortized
Year 9
Premium to be amortized as on 31 Dec year 9
Total premium=	$17,20,000 - $16,802,426 = $397,574
Premium Amortized= $397,574/20 * 3
=	$59,636.10
Remaining value to be amortized=$397,574 - $59,636.1
=	$337,937.90
Carrying value as on December 31, year 9
Carrying value of bond= $17,200,000 + $337,937.9
=	$17,537,937.90