Question

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?

Answer 1

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