Question

A company issued 6-year, 8% bonds with a par value of $350,000. The market rate when...

A company issued 6-year, 8% bonds with a par value of $350,000. The market rate when the bonds were issued was 7.5%. The company received $353,500 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Multiple Choice

  • $27,708.

  • $13,708.

  • $14,000.

  • $28,000.

  • $14,292.

A corporation reports the following year-end balance sheet data. The company's working capital equals:

Cash $ 44,000 Current liabilities $ 79,000
Accounts receivable 59,000 Long-term liabilities 39,000
Inventory 64,000 Common stock 104,000
Equipment 149,000 Retained earnings 94,000
Total assets $ 316,000 Total liabilities and equity $ 316,000

Multiple Choice

  • $88,000

  • $167,000

  • $79,000

  • $316,000

  • $198,000

Homework Answers

Answer #1

Bond premium amortized each period = (Carrying value of the bonds - Face value of the bonds) / Number of interest periods

= ($353,500 - $350,000) / (6 * 2)

= $292

Interest expense = Interest paid - Bond premium amortized

= ($350,000 * 8% * 1/2) - $292

= $13,708

-------------------------------------------------------

Working capital = Current assets - Current liabilities

= (Cash + Accounts receivable + Inventory) - Current liabilities

= ($44,000 + $59,000 + $64,000) - $79,000

= $88,000

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