On January 1, Year 4, a firm issued 8 percent term bonds with a face amount of $

ID: 2348973 • Letter: O

Question

On January 1, Year 4, a firm issued 8 percent term bonds with a face amount of $1 million due January 1, Year 14. Interest is payable semi-annually on January 1 and July 1. On the date of issue, investors were willing to accept an effective interest rate of 6 percent. Assume the bonds were issued on January 1, Year 4. for $1,148,959. Using the effective interest amortization method, David Realty Company recorded interest expense for the six months ended June 30, Year 4, in the amount of:
$40,000, $80,000, $68,938, $34,469, none of the above

On January 1, Year 4, a firm issued 8 percent term bonds with a face amount of $1 million due January 1, Year 14. Interest is payable semi-annually on January 1 and July 1. On the date of issue, investors were willing to accept an effective interest rate of 6 percent. Assume the bonds were issued on January 1, Year 4. for $1,148,959. The bonds were issued on January 1, Year 4, at:
a premium, an amortized value, a discount, face value or par value

Explanation / Answer

Date

Cash Paid

Interest Expense

Premium Amortized

Carrying Amount of Bonds

January 1 Year 4

1,148,959

July 1 Year 4

80,000

68,938

11,062

1,137,897

Interest expense is 6% times the carrying amount (6%*1,148,959) = 68938

Answer to second question is premium