On January 1, 2016, Solo Inc. issued 208,000 of its 6% bonds at 104. Interest is

Question

On January 1, 2016, Solo Inc. issued 208,000 of its 6% bonds at 104. Interest is payable semiannually on January 1 and July 1 . The bonds mature in ten years. Solo uses straight-line amortization. The amount of interest expense for the year is: tion 15 0 out of 0.2 points Enterprise Group issued $100,000 of 4-year 6% bonds outstanding on December31 2015 for On April 1, 2016, $20,000 of the bonds were retired at 96 103001 Enterprise uses stra in amor zation. What is the credit to cash? eptember 17, 2018 10:29:03 PM CDT

Explanation / Answer

Premium on Bond = Issue Price of the Bond – Face Value

= [$208,000 x 104% - 208,000]

= $8,320

Semiannual Amortization of Premium under straight line method

= $8,320 / 20 Period

= $416

Annual Coupon Interest Amount = Face Value x Coupon rate

= $208,000 x 6% x ½

= $6,240

Interest Expense for the first semiannual period

= Coupon Interest Amount - Semiannual Amortization of Premium on Bond

= $6,240 – 416

= $5,824

Therefore, Interest Expense for the Year = $5,824 x 2 = $11,648

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