Question

On July 1, 2023, Smith Company issued 600 of its 7%, $1,000 bonds. The bonds were issued to yield 12%. The bonds are dated July 1, 2023, and mature on July 1, 2033. Interest is payable semiannually on January 1 and July 1. Using the effective interest method, how much of the bond discount should be amortized for the 6 months ended December 31, 2023?

Answer 1

The correct answer is

$ 4677

Calculation

Firstly we have to calculate the issue price of the bond

= (interest payment * present value factor (6%,20)) + (face value * present value factor (6%,20))

= ((600000*7%/2)*((1-(1.06)^-20)/.06)) + (600000*(1/(1.06)^20))

= $427951

Discount amortized on december 31, 2013 = (issue price * market interest rate) - cash interest paid

= (427951*12%/2) - (600000*7%/2)

= $25677 -21000

= $ 4677

Thus the correct answer is $ 4677

answered by: anonymous