Question

On June 1, 2019 Adelphi Corporation issued $415,000 of 6%, 5-year bonds.  The bonds which were issued at 105, pay interest on January 1 and June 1. Use this information to calculate the amount of bond discount or premium that is amortized with each interest payment. If this is discount amortization enter as a positive number. If this is premium amortization enter as a negative number. Your answer:

On December 31, 2018, Adelphi Corporation has outstanding 1,000 shares of $100 par value, 4% cumulative and nonparticipating preferred stock, and 14,000 shares of $10 par value common stock. Preferred dividends were paid in 2016 but were not paid in 2017. During 2018, Alpha distributed $25,000 in dividends. Use this information to determine for 2018 the dollar amount of dividends that will be distributed per Common Share. Round answer to closest cent. Your answer:

Answer 1

ANSWER

The bonds are issued at a discount at 105 %

Issue price = $415,000 * 105 % = $435,750

Discount on issue = $415,000 - $435,750= -$20,750

Assuming straight line method of amortization, the number of periods in which discount is to be amortized is 5*2 = 10 interest periods.

Bond discount amortized with each interest payment = -$20,750 / 10 = -$2,075

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Preferred dividend = 1,000 *100*4% = $4000

Total dividend for 2018 = $25,000

Dividend paid to preferred = 4000 * 2 = 8000

Dividend paid to common = 25,000 -8000= 17,000

Dollar amount of dividend that will be distributed per common Share = 17,000 /14,000 = 1.21 per share

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