On January 1, 2016, Solo Inc. issued 461,000 of its 5% bonds at 103. Interest is
ID: 2334916 • Letter: O
Question
On January 1, 2016, Solo Inc. issued 461,000 of its 5% bonds at 103. Interest is payable semiannually on July 1 and December 31, The bonds mature in ten years. Solo uses straight-line amortization. The carrying value of the bond on December 31, 2016 would be tion 4 0 out of 0.2 points Emma Company purchased a machine from Noah Corporation on October 31, 2016. In payment for the $188,200 purchase, Emma issued a one- year installment note to be paid in equal monthly payments of $16,721 at the end of each month. The payments include interest at an annual rate of 1 296. After recording the November 30, 2016 payment, the balance in Notes Payable will be _Explanation / Answer
Answer to 1st Question
Issue Price of the Bond = $461,000
Issue Price of the Bond = $461,000 x 103% = $ 4,74,830
Premium on Issue of Bond = Issue Price – face Value of the Bond
= $4,74,830 – 461,000
= $13,830
Amortization of Bond during each semiannual period
= $13,830 / 20 Periods
= $691.50
Therefore, Carrying amount of the Bond on December 31,2016
= Issue Price of the Bond – Total Premium amortized
= $4,74,830 – [$691.50 x 2]
= $4,73,447
Answer to 2nd Question
Equal Monthly Payment = $16,721
Interest on Note Payable for the Month of November 2016 = $188,200 x 1% = $1,882
Principal Amount repaid on Notes Payable on November Payment
= $16,721 – 1,882
= $14,839
Therefore, Balance in Notes Payable after recording the November 30, 2016 Payment will be $1,73,361 [$188,200 – 14,839]
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