Question

On 1 January 2013, Ouyang Inc issues $1,000,000 face value, 10-year bonds with annual interest rate...

On 1 January 2013, Ouyang Inc issues $1,000,000 face value, 10-year bonds with annual interest rate of 5% to be paid each 31 December. The market interest rate is 4%. Using the effective interest rate method of amortization, Ouyang Inc should record when it closes its annual book on Dec 31, 2015 (Round your number to integers):

Choices:

a carrying amount of 1,081,109 on Dec 31, 2015

an interest expense of 42,974 on Dec 31, 2015

a cash disbursement of 43,244 on Dec 31, 2015

a carrying amount of 1,060,021 on Dec 31, 2015

an amortization of discount of 7,307 on Dec 31, 2015

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer :

Correct option : a carrying amount of 1,060,021 on Dec 31, 2015

Calculation :

Calculation of carrying value :

Amount PV factor 4% Present value
Cash interest 50,000 8.11090 405545
Principal 1,000,000 0.67556 675564
Total

1,081,109

Calculation of interest expense on carrying value :

Interest expense 4%: Amount Calculation
December 31, 2013 43244 1081109*4%
December 31, 2014 42974 1074353*4%
December 31, 2015 42693 1067327*4%
Period Cash interest Interest expense 4% Premium amortized Carrying value
January 01, 2013 1081109
December 31, 2013 50000 43244 6756 1074353
December 31, 2014 50000 42974 7026 1067327
December 31, 2015 50000 42693 7307 1060021
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company issues bonds with a par value of $10,000,000 on January 1, 2013. The bonds...
A company issues bonds with a par value of $10,000,000 on January 1, 2013. The bonds have an annual coupon rate of 5%, pay interest semi-annually, and will mature in 5 years. If the market rate of interest on the bonds is 6% per year, then what is the carrying amount of the bonds on December 31, 2015? [Note: the company uses the effective interest method of amortization.]
Hamilton issues bonds dated January 1, 2019, with a par value of $250,000. The bonds’ annual...
Hamilton issues bonds dated January 1, 2019, with a par value of $250,000. The bonds’ annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $231,570. Required: (You are better to prepare an amortization table to support your answer) Please calculate, cash interest paid, bond interest expense, discount amortization, and carrying...
Trader Joes issues $5,000,000 of 8%, 4-year bonds dated January 1, 2013, that pay interest semiannually...
Trader Joes issues $5,000,000 of 8%, 4-year bonds dated January 1, 2013, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of 5,030,00 Prepare the January 1, 2013, journal entry to record the issuance. For each semiannual period, compute the cash payment, the straight-line premium or discount amortization the bond interest expense Cash proceeds= Cash proceeds= Bonds interest expense= cash interest paid + bond discount Bonds interest expense= Bonds interest expense= Bonds...
Bryant Inc. issues 10-year bonds with a face value of $8,000,000 and a stated annual interest...
Bryant Inc. issues 10-year bonds with a face value of $8,000,000 and a stated annual interest rate of 2%. The bonds pay interest annually on December 31. The annual market rate of interest on the date of issue is 3%. Provide the journal entry that the company will make to record the bond issue.
On January 1, 2020, Ivanhoe Corporation issued $2,060,000 face value, 4%, 10-year bonds at $1,900,932. This...
On January 1, 2020, Ivanhoe Corporation issued $2,060,000 face value, 4%, 10-year bonds at $1,900,932. This price resulted in an effective-interest rate of 5% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on January 1. Prepare an amortization table through December 31, 2022 (three interest periods) for this bond issue. (Round answers to 0 decimal places, e.g. 15,250.) LOCK CORPORATION Bond Discount Amortization Effective-Interest Method—Annual Interest Payments Annual Interest...
Coffman Company sold bonds with a face value of $1,000,000 for $913,815. The bonds have a...
Coffman Company sold bonds with a face value of $1,000,000 for $913,815. The bonds have a coupon rate of 9 percent, mature in 6 years, and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Using a discount account, record the sale of the bonds on January 1 and the payment of interest on June 30 of this year. Coffman uses the effective-interest amortization method. Assume an annual...
Apple Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2018. Interest is...
Apple Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2018. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Greece uses the straight-line method of amortizing bond discount or premium. 1) The entry made by Apple Company to record issuance of the bonds payable at December 31, 2018, includes: A- a credit to bonds payable of 970000 B_ a credit to bond interest 30000 C- A debit...
On January 1, a business issues $100,000 face value, 5 year, 10% contract rate bonds dated...
On January 1, a business issues $100,000 face value, 5 year, 10% contract rate bonds dated January 1. Interest is payable ANNUALLY each December 31. The bonds were issued at a discount of $7,210 to reflect a market interest rate of 12%. Prepare the necessary journal entries to record total interest expense for the FIRST interest period.
$480,000, 9%, 20-year bonds on January 1, 2020, for $439,135. effective-interest rate of 10% on the...
$480,000, 9%, 20-year bonds on January 1, 2020, for $439,135. effective-interest rate of 10% on the bonds which payable annually on January 1. Monty uses the effective-interest method to amortize bond premium or discount. A) use the effective-interest method to amortize bond prem/disc. record issuance on bond. Jan 1 2020 cash - Discount on bonds payable- bonds payable- B) Record accrual of interest/ discount amortization Dec31,2020 Dec 31 Interest expense - discount on bonds payable - interest payable - C)...
Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of $61,000 for $61,000 on January...
Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of $61,000 for $61,000 on January 1, 2018. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually on June 30 and December 31. 1. & 2. Record the bond issue and first interest payment on June 30, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) On January 1, 2018, Lyle's Limeade...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT