Question
In: Accounting
On January 1, 20D, Janus Company issued $5 million of 10-year bonds at a 10% stated...
On January 1, 20D, Janus Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid semiannually. Assume straight-line amortization.
15. If Janus issued the bonds at a price of 106.5, the amount of interest expense on June 20, 20D equals:
(a) $467,500
(b) $440,875
(c) $233,750
(d) $222,044
16. If Janus issued the bonds at a price of 106.5, what is the book value of Janus' bonds on July 1, 20D after the interest payment?
(a) $5,297,044
(b) $5,292,500
(c) $5,265,875
(d) $5,308,750
Solutions
Expert Solution
Requirement 1
Correct answer---(c) 233,750
Working
|
Bond issue price |
$ 53,25,000.00 |
|
Face value |
$ 50,00,000.00 |
|
Premium on bond |
$ 3,25,000.00 |
|
Number of Interest payments (10 years x 2 ) |
20 |
|
Premium to be amortized per payment |
$ 16,250.00 |
|
Interest on bond |
$ 2,50,000.00 |
|
Date |
Description |
Post. Ref |
Debit |
Credit |
|
June 30 |
Bond interest expense |
$ 2,33,750 |
||
|
Premium on Bond payable |
$ 16,250 |
|||
|
Cash |
$ 2,50,000 |
|||
|
(Interest on bond paid and Discount amortized) |
Requirement 2
Correct answer---(d) $5,308,750
Working
|
Carrying value before Interest payment and premium amortization |
$ 53,25,000.00 |
|
Less: Premium amortized |
$ 16,250.00 |
|
Bond carrying value |
$ 53,08,750.00 |
Carrying value of bond is at premium so it has to come down to face value at the time bond is redeemed. The amount of $16250 will be deducted every period of interest payment and on the last interest payment bond value will become $5000000.
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