Question

MC Qu. 120 A company issued...

A company issued 5-year, 6% bonds with a par value of $92,000. The company received $89,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Multiple Choice:

$5,520.00.

$5,930.60.

$2,554.70.

$2,965.30.

$2,760.00.

MC Qu. 122 A company issued...

A company issued 11%, 5-year bonds with a par value of $150,000. The market rate when the bonds were issued was 12%. The company received $144,481 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Multiple Choice:

$8,250.00.

$8,668.86.

$17,337.72.

$9,000.00.

$16,500.00.

Answer 1

solution:

(a)

A company issued 5years 6% bonds with par value $92000 and received $89947.

The differnce amount is $92000-$89947 =$ 2053

therefore 2053 will be discount.

during the life of bonds the discount amount would be amortized.

therefore anual amortizition = 2053/5 =410.6.3

the amount of interest expense for the first semi anual interest period :

iinterest on bonds(92000*6%*1/2)	2760
discount amortization(410.60/2)	205.3
total interest expense	$2965

the amount of interest expense for the first semiannual interest period is $2965.

(b)

FV=150000+12% *6% =10080

date	opening balance	12%/2
A	B	C	D=B*C	E=FV*C	F=E-D	CLOSING BALANCE
30/6/2015	144481	6	8668	10080	1412	143069
31/12/2015	143069	6	8584	10080	1495	141574
30/6/2016	141574	6	8494	10080	1585	139988
31/12/2016	139988	6	8399	10080	1680	138307
30/6/2017	138307	6	8298	10080	1781	136525
31/12/2017	136525	6	8191	10080	1888	134636
30/6/2018	134636	6	8078	10080	2001	132634
31/12/2018	132634	6	7958	10080	2121	130512
30/6/2019	130512	6	7830	10080	2249	128262
31/12/2019	128262	6	7695	10080	2384	125872

the amount of interest expense for the first semiannual interest period is $8668