Question

1.Kaselitz Corp. issued a $100,000, 8%, 5-year bond on 1/1/16. Interest is paid each June 30 and December 31. The bond sold for $104,158 to yield 7%. The effective interest method is used.

Cash interest paid to the bondholders in 2016 is:

Select one:

a. $7,291

b. $8,333

c. $7,365

d. $7,000

e. $8,000

2.

Kaselitz Corp. issued a $100,000, 9%, 5-year bond on 1/1/16. Interest is paid each June 30 and December 31. The bond sold for $104,055 to yield 8%. The effective interest method is used.

The Premium on Bonds Payable amortized in 2016 is:

Select one:

a. $811

b. $336

c. $689

d. $676

e. $348

Answer 1

1
Cash interest paid to the bondholders in 2016	8000	=100000*8%
Option E $8,000 is correct
2
Semi-annual interest paid	4500	=100000*9%*6/12
Interest expense for June 30,2016	4162	=104055*8%*6/12
Premium amortized for June 30,2016	338	=4500-4162
Interest expense for December 31,2016	4149	=(104055-338)*8%*6/12
Premium amortized for December 31,2016	351	=4500-4149
Premium on Bonds Payable amortized in 2016	689	=338+351
Option C $689 is correct