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Annie Kavitha
Annie Kavitha, Lecturer
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A corporation issues $100,000, 8%, 5-year bonds on January

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1) A corporation issues $100,000, 8%, 5-year bonds on January 1, 2007, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized on July 1, 2007, is _______.

2) On January 1, 2007, the Kings Corporation issued 10% bonds with a face value of $100,000. The bonds are sold for $96,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2011. Kings records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2007, is _______.

3). When the market rate of interest was 11%, Welch Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be ________.
Submitted: 6 years ago.
Category: Finance
Expert:  Annie Kavitha replied 6 years ago.
  • 1) A corporation issues $100,000, 8%, 5-year bonds on January 1, 2007, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized on July 1, 2007, is _______.

Par value of Bonds 100,000

Issue price of Bonds 104,200

Premium on issue 4,200

No. of years = 5

No. of periods= 5x2 = 10 periods

Amortization of Bond premium per period = 4,200/10 = 420 per period

Interest payable = 100,000 x 8% x ½ = 4,000

Interest expense = 4,000 - 420 = 3,580

2) On January 1, 2007, the Kings Corporation issued 10% bonds with a face value of $100,000. The bonds are sold for $96,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2011. Kings records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2007, is _______.

Par value of Bonds 100,000

Issue price of Bonds 96,000

Discount on issue 4,000

No. of years = 5

No. of periods= 5x2 = 10 periods

Amortization of Bond discount per period = 4,000/10 = 400 per period

Interest payable = 100,000 x 10% x ½ = 5,000

Interest expense = 5,000 + 400 = 5,400


3). When the market rate of interest was 11%, Welch Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be ________.

Bonds are issued at Face value. Thus no discount or premium is realized on issue and therefore no amortization of bond discount or premium.

Annie Kavitha, Lecturer
Category: Finance
Satisfied Customers: 997
Experience: M.Com
Annie Kavitha and 3 other Finance Specialists are ready to help you
Customer: replied 6 years ago.
Reply to Annie Kavitha's Post: You got one right but the other two wrong.

Q2 Possable answers $9,200 or $9,800, or $10,400, or $10,800 (you said "$5400")

Q3 Possable answers. $4,000 or $896, or $17,926, or $1,793 (You answerd "No discount")

The answer you give me needs to match one of those numbers. I didnt want to include the possable answers in the origanl mail incase someone just guessed as I would not be able to tell if they where right or not) Would pay $5 for the one correct answer but not sure how.
Expert:  Annie Kavitha replied 6 years ago.
2) On January 1, 2007, the Kings Corporation issued 10% bonds with a face value of $100,000. The bonds are sold for $96,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2011. Kings records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2007, is _______.

Par value of Bonds 100,000

Issue price of Bonds 96,000

Discount on issue 4,000

No. of years = 5

No. of periods= 5x2 = 10 periods

Amortization of Bond discount per period = 4,000/10 = 400 per period

Interest payable = 100,000 x 10% x ½ = 5,000

Interest expense = 5,000 + 400 = 5,400 per period.

Interest expense for the year ended December 31, 2007 (June 30 + December 31) = 5,400 + 5,400 = 10,800.


3). When the market rate of interest was 11%, Welch Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be ________.

Bonds are issued at Face value. Thus no discount or premium is realized on issue and therefore no amortization of bond discount or premium.

Thus interest expense for 1 period = 100,000 x 8% x 1/2 = 4,000

Annie Kavitha, Lecturer
Category: Finance
Satisfied Customers: 997
Experience: M.Com
Annie Kavitha and 3 other Finance Specialists are ready to help you

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