Question
In: Accounting
On January 1, Year 1, Victor Company issued bonds with a $750,000 face value, a stated...
On January 1, Year 1, Victor Company issued bonds with a $750,000 face value, a stated rate of interest of 5%, and a 5-year term to maturity. The bonds sold at 96. Interest is payable in cash on December 31 of each year. Victor uses the straight-line method to amortize bond discounts and premiums. What is the amount of interest expense appearing on the income statement for the year ending December 31, Year 3?
Solutions
Expert Solution
Interest expense in year 3= $ 43,500
Working
| Changes During the Period | Ending Bond Liability Balance | |||||
| Period Ended | Cash Paid | Discount Amortized | Interest expense | Bonds payable | Discount on Bonds payable | Carrying Value |
| Start | $ 750,000 | $ 30,000 | $ 720,000 | |||
| Ye 1 | $ 37,500 | $ 6,000* | $ 43,500 | $ 750,000 | $ 24,000 | $ 726,000 |
| Ye 2 | $ 37,500 | $ 6,000 | $ 43,500 | $ 750,000 | $ 18,000 | $ 732,000 |
| Ye 3 | $ 37,500 | $ 6,000 | $ 43,500 | $ 750,000 | $ 12,000 | $ 738,000 |
| Ye 4 | $ 37,500 | $ 6,000 | $ 43,500 | $ 750,000 | $ 6,000 | $ 744,000 |
| Ye 5 | $ 37,500 | $ 6,000 | $ 43,500 | $ 750,000 | $ - | $ 750,000 |
*30000/5
ekkarill92 answered 2 years agoRelated Solutions
On January 1, Year 1, Victor Company issued bonds with a $750,000 face value, a stated...
On January 1, Year 1, Victor Company issued bonds with a
$750,000 face value, a stated rate of interest of 5%, and a 5-year
term to maturity. The bonds sold at 96. Interest is payable in cash
on December 31 of each year. Victor uses the straight-line method
to amortize bond discounts and premiums. What is the carrying value
of the bond liability at December 31, Year 3?
On January 1, Year 1, Victor Company issued bonds with a $650,000 face value, a stated...
On January 1, Year 1, Victor Company issued bonds with a
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term to maturity. The bonds sold at 95. Interest is payable in cash
on December 31 of each year. Victor uses the straight-line method
to amortize bond discounts and premiums. What is the carrying value
of the bond liability at December 31, Year 3?
On January 1, Year 1, Victor Company issued bonds with a $650,000 face value, a stated...
On January 1, Year 1, Victor Company issued bonds with a
$650,000 face value, a stated rate of interest of 6%, and a 5-year
term to maturity. The bonds sold at 95. Interest is payable in cash
on December 31 of each year. Victor uses the straight-line method
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Victor Company issued bonds with a $250,000 face value and a 6%stated rate of interest...
Victor Company issued bonds with a $250,000 face value and a 6%
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The market rate of interest on the date of issuance was 4%.
Interest is paid annually on December 31.
REQUIRED:
Complete the amortization schedule below:
Cash Payment
Interest Expense
Amortization
Carrying Value
1/1/Year 1
12/31/Year 1...
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1. Prepare the journal entry to record the
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2. Prepare the journal entry to record...
On January 1 of this year, Victor Corporation sold bonds with a face value of $1,560,000...
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mature in four years and pay interest semiannually every June 30
and December 31. Victor uses the straight-line amortization method
and also uses a premium account. Assume an annual market rate of
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straight-line method to amortize bond discounts and premiums. Based
on this information alone, how does the recognition of interest
expense during Year 1 affect the company’s accounting equation?
Multiple Choice
Increase...
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