ACC Inter II ch 14 4a Enterprise Group issued 100000 of 4yea

ACC Inter II ch 14

4a) Enterprise Group issued $100,000 of 4-year, 6% bonds outstanding on December 31, 2015 for $94,000. Enterprise uses straight-line amortization. On April 1, 2016, $20,000 of the bonds were retired at 96. What is the book value of the bonds sold on April 1?

4b) Ava, Inc., issued 7% bonds, dated January 1, with a face amount of $152,000 on January 1, 2016 for an issue price of 88.5. The bonds mature on December 31, 2025 (10 years). For bonds of similar risk and maturity the market yield is 9%. Interest is paid annually on December 31.

What is the 1st year\'s interest expense?

Solution

4a) face value of bonds 100,000 issue price of bonds 94,000 Discount on bonds 6,000 percentage of bonds retired = 20000/100000= 0.2 so discount on 6000*.2 = 1200 amortization of bonds 1200/48 = 25 per month so on april 1 discount amortized = 25*3 75 Book value of bonds on April 1,2016 Bonds payable 20,000 less:Discount on bonds (1200-75))= 1125 Book value of bonds on April 1,2016 18,875 answer 4b) face value of bonds 152,000 issue price of bonds (152000*88.5%) 134,520 Discount on bonds 17,480 interest expense = 134,520*9% 300 12106.8 or 12,107 interest expense for 1st year