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Calculate total interest for: a $400,000, 9%,twenty-year bond issued at 101. The bond pays interest semi-annually...

Calculate total interest for: a $400,000, 9%,twenty-year bond issued at 101. The bond pays interest semi-annually on June 30 and December 31.

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Answer #1

Answer :- $35,800

June 30 $18,000
December 31 $18,000
Total $36,000
Date Particulars Debit Credit
June 30 Interest on bond ($400,000 * 9%) / 2 $18,000
Bonds Premium $100
Interest on Bond $100
Interest payable ($18,000 - $100) $18,000
December 31 Interest on bond ($400,000 * 9%) / 2 $18,000
Bonds Premium $100
Interest on Bond $100
Interest payable ($18,000 - $100) $18,000
A. Fair value of Bond $400,000
B. Issue price $404,000
C. Preimum on issue (B-A) $4,000
D. Total life in months (20*12) $240
E. Amorization of premium semi annually (C/D * 6) $100
F. semi annual Interest on face value of bond (A*9%) /2 $18,000

- premium on bond will be amortized over life of bond which will reduce the interest liability every month.

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