MC Qu. 111 On January 1 of Year... On January 1 of Year 1, Congo Express Airways
ID: 2339241 • Letter: M
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.
Explanation / Answer
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
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