Maria is going to take out a loan with a principal of $19,700. She has narrowed down her options to two banks. Bank M charges an
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Solution :
a).
Par value of the bonds outstanding 220,000
Annual interest rate x 10%
Interest payment 220,000
Amortization of the bonds premium 6600
Interest charged for full year 15400
Less:interest on the bond purchased 2567
by Online Enterprise (15400 x 1/2) x
(4 months / 12 months)
Interest expense included in the consolidated 12833
income statement
b).
Sale price of bonds, 1 Jan 20x1 138,000
(120,000 x 115%)
Amortization of premium 9600
Book value at time of purchase 128,400
Purchase price 120,000
Gain on bond retirement 8400
c).
Events Accounts Debit Credit
1 Bonds payable 120,000
Bonds premium 6600
interest income 4367
investment in Salt bonds 120,000
Interest expense 2567
Gain on bond retirement 8400
2 interest payable 8100
(4950+11900+8750)
Interest receivable 8100