Singletary Inc issued $400,000 of 8.5% bonds payable on July 1, 2001 at 98.5%. T
ID: 2442429 • Letter: S
Question
Singletary Inc issued $400,000 of 8.5% bonds payable on July 1, 2001 at 98.5%. The bonds have a call price of 102. The bonds term to maturity is 15 years. On Dec 31, 2006, Singletary redeemed the bonds.a. compute the carryiing amount of the bonds payable at Dec 31, 2006
b. the amount Singletary will pay the bondholders for the bonds. Singletary uses the straightline method to amortize bond premiums and discounts.
Please provide steps so I can understand how to do this type of problem.
Thanks so much!!!
Explanation / Answer
$400,000 of 8.5% bonds payable on July 1, 2001 at 98.5%
Call price of the bond = 102
Number of years to maturity = 15 years
(a) Computing the Carrying amount of the bonds payable at December 31, 2006:
$400,000 + Premium of the bond = $400,000 * 102% = $408,000
Carrying amount of the bonds payable at December 31 = $408,000
(b)
July1, 2001 to December 31, 2006 = 11 Semi- annual payments
Bonds payable = [$400,000 * 98.5%] = $394,000
Discount Amortization = [($400,000 - $394,000) / 11] = $545.45
Discount Amortization = $545.45
Number of periods to Maturity = 15 years
Total periods = 15* 2 = 30 periods
Premium amortization periods = 30 – 11 = 19
Premium amortization = [($408,000 - $400,000) / 19]
Premium amortization = $421.05