COB Company issues 10000000 78 20year bonds to yield 8 on Ja

COB Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2018, The proceeds from the bonds are $9,802,072. Interest is paid on July 1 and January 1 . 1. Where these bonds issued at a premium or discount? 2. What is the amount of the bond amortization at July 1 under the straight-line method? 3. What is the amount of the bond amortization at July 1 under the effective-interest method?

Solution

ans 1 Bonds are issued at discount as issue price of $9802072 is less than the face value of $10000000 ans b In $ Amt of Bond amortization using straight line method on July 1 4948.2 ans Rounded off 4948 Total bond discount A (10000000-9802072) 197928 Total period (20*2) B 40 Amortize amt A/B 4948.2 ans c Amt of Bond amortization using effective method on July 1 Interest expenses 9802072*8%*1/2 C 392083 Interest payable 10000000*7.8%*1/2 D 390000 Discount of Bonds payable C-D 2083 ans If any doubt please comment