Question

MC Qu. 111 On January 1 of Year...

On January 1 of Year 1, Congo Express Airways issued $2,700,000 of 6% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,450,000 and the market rate of interest for similar bonds is 7%. The bond premium or discount is being amortized at a rate of $8,333 every six months. After accruing interest at year end, the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Multiple Choice:

$2,547,666.

$3,014,334.

$2,385,666.

$2,466,666.

$2,933,334.

MC Qu. 112 On January 1 of Year...

On January 1 of Year 1, Congo Express Airways issued $2,700,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,470,000 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $7,667 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

Multiple Choice:

$216,000.

$189,000.

$102,167.

$173,666.

$204,334.

Answer 1

1
Bond discount	2,700,000 -2,450,000	250,000
Balance of bond discount account	250000-8,333 -8,333	233,334
Book value of a bond = Face value - Unamortized discount	2,700,000-233334	2466666
	2,700,000*6%*6/12	81000
Total liabilities = Book value of the bonds + interest payable	2466666+94500	2,547,666
Ans:Option A	2,547,666
2
The amount of interest expense recognized by Congo Express Airways on the bond issue Year 1 would be
Cash paid every six months	2,700,000*7%*6/12	94500
Discount amortization every six months	7,667
Interest Expense	(94500+7667)*2	204,334
Ans:Option E 204334