Bob\'s Hamburgers issued 8%, 10-year bonds payable at 70 on December 31, 2016. A
ID: 2481916 • Letter: B
Question
Bob's Hamburgers issued 8%, 10-year bonds payable at 70 on December 31, 2016. At December 31, 2018, Bob reported the bonds payable as follows: Bob's pays semiannual interest each June 30 and December 31. Requirements 1. Answer the following questions about Bob's bonds payable: a. What is the maturity value of the bonds? b. What is the carrying amount of the bonds at December 31, 2018? c. What is the semiannual cash interest payment on the bonds? d. How much interest expense should the company record each year? 2. Record the June 30, 2018, semiannual interest payment and amortization of discount.Explanation / Answer
1 a.
Maturity value of Bond =Principal value of bond $300,000 + Final Interest 300000*8%/2 = 300000 + 12000 = $312,000
1 b. Carring amount of Bond on 31.12.2018 is $300,000, to be reported under Liability and Discount on Bond Paybale $ 72000 to be reported under Asset
1 c.
Semi annual cash interest payment (each 6 months) = 300000 * 8% / 2 = $12,000
1 d. Interest Expenses each year to be reported = Interest paid each year i.e. 300000*8% + Amortisation of discount each year i.e. (300000 - 300000*70%)/10 = 24000+9000 = $33,000
2.
Date Journal Debit Credit 30.06.2018 Interest Expenses 12000 Amortisation Expenses 4500 Cash 12000 Bond Discount 4500