Presented below are three independent situations. (a) Blue Co. sold $2,120,000 o

Question

Presented below are three independent situations.

(a) Blue Co. sold $2,120,000 of 10%, 10-year bonds at 105 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Blue uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017. (Round answer to 0 decimal places, e.g. 38,548.)

(b) Kingbird Inc. issued $660,000 of 8%, 10-year bonds on June 30, 2017, for $577,750. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kingbird uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

Explanation / Answer

a Premium on issue = 2120000*5%= $106000 Interest expense to be recorded = (2120000*10%/2)-(106000/20)= $100700 b Interest expense to be recorded = 577750*10%/12*4= $19258

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.