4. (TCO D) Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1,

Question

4. (TCO D) Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1, 2010 and received cash totaling $5,323,577. The bonds pay interest semiannually on May 1 and November 1. The maturity date on the bonds is November 1, 2018. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 10%. Instructions: Calculate the total dollar amount of discount or premium amortization during the first year (5/1/2010 through 4/30/2011) these bonds were outstanding. (Show computations and round to the nearest dollar.) (Points : 30)

Explanation / Answer

Grider Industries Bond Details Amt $ Bond Face value        6,000,000 Bond Issue price        5,323,577 Discount on Bond              676,423 Semi annual coupon @4% =            240,000 Semi annual effective rate =5% Amortization Period Ineterst Payable Interest expense @5% on carrying value Discount Amortized Unamortized discount Bond Payable Carrying value May 1.2010.        676,423      6,000,000           5,323,577 Nov 1.2010.            240,000           266,179          26,179        650,244      6,000,000           5,349,756 Apr 30.2010.            240,000           267,488          27,488        622,756      6,000,000           5,377,244 So discount amortized amount Period Discount Amortized Nov 1.2010.              26,179 Apr 30.2010.              27,488

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