ume or net loss and dividends y prepared in a columnar format. ach Changes in ea

Question

ume or net loss and dividends y prepared in a columnar format. ach Changes in each classification are then a statement of stockholders epaity uity classification. 20. Shem Creek Corp. issued $200,000 of five-year, 9% bonds for S192.298 on laman interest is payable semiannually on June 30 and December 31, beginning on lune 30,201S The market rate at the time of issuance is 10% Calculate the amountaf intereste ge se and am ruation of the discount recerded for the irst fiscal year ending December 31, 201s, using thes a methed for amertization 1, 2ms. The Straighte-ine 85 0300

Explanation / Answer

Straight line method for amortization:

Discount on bonds payable $7702 ($200000 - $192298)

The term of bonds is 5 years

Semiannual Interest $200000*9%*6 months/12 months = $9000

Semiannual amortization of discount ($7702/10 periods) $770.20

Interest expense for first year: ($9000 + $770.20) × 2 periods = $19540.40

Amortization of discount for first year: $770.20 × 2 periods = $1540.40

Notes: Term of bonds is 5 years. These are semiannual bonds.

Hence, 5 years*2 periods = 10 periods.

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