Rider Industries issued $6,000,000 of 8% debentures on 5/1/12 and received cash

Question

Rider Industries issued $6,000,000 of 8% debentures on 5/1/12 and received cash totalling $5,098,102. The bonds pay interest semiannually on 5/1 and 11/1. The maturity date on these bonds is 11/1/20. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10%.

Calculate the total dollar amount of discount or premium amortization during the first year (5/1/12 through 4/30/13) these bonds outstanding. Show computations and round to the nearest dollar.

Explanation / Answer

On 11/1 DR Interest expense (5,098,102 *.10/2) 254,905 CR Cash 240,000 CR Discount amortization 14,905 On 4/30 DR Interest expense (5,113,007*.10/2) 255,650 CR Cash 240,000 CR Discount amortization 15,650 Total discount amortization is 30,555.

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