What would be the answer to this question and how did youfigure it? A company is

Question

What would be the answer to this question and how did youfigure it? A company issues $20,000,000, 7.8%, 20-year bonds to yield 8%on January 1, 2007. Interest is paid on June 30 and December31. The proceeds from the bonds are $19,604,145. Usingeffective-interest amortization, what will the carrying value ofthe bonds be on the December 31, 2007 balance sheet? (Points:1)
       $19,612,643
       $20,000,000
       $19,625,125
       $19,608,310

What would be the answer to this question and how did youfigure it? A company issues $20,000,000, 7.8%, 20-year bonds to yield 8%on January 1, 2007. Interest is paid on June 30 and December31. The proceeds from the bonds are $19,604,145. Usingeffective-interest amortization, what will the carrying value ofthe bonds be on the December 31, 2007 balance sheet? (Points:1)
       $19,612,643
       $20,000,000
       $19,625,125
       $19,608,310

Explanation / Answer

$1,560,000

30-Jun

31-Dec

Effective Interestmethod Principal $20,000,000 lnterest ($39000 times 40semiannualperiods)

$1,560,000

(7.8% of 20,000,000)      Total Cashpayments to investors $21,560,000 less: cash receipts from investors -19604145     TotalInterest expense $1,955,855

30-Jun

Interest expense(1955855 / 40) 48896        Discount onbonds payable(395855 / 40) 9896         Cash(20,000,000 X 7.8%/40) 39000

31-Dec

SAME ENTRY Total Interest expense on $20,000,000is $1560000 and amotized discount also of $1955855 in 40 semiannualperiods carrying value of bonds on 1 jan07    = $19,604,145 carrying value of bonds on 30 june 07= $19614041 (19604145 + 9896) carrying value of bonds on 31 Dec,07= $19623937 (19614041 + 9896) hope this will help you

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