Answer:
Mabry Corporation
Using the effective interest method, the bond discount should be reduced for the 6 months ended December 31, 2018 by:
= d. $90,000
Explanation:
a) Data and Calculations:
Face value of bonds issued = $15 million
Issue price of the bonds = 13.8 million
Bonds discounts = $1.2 million
Coupon rate of interest = 8%
Effective interest rate = 10%
Interest payment = semi-annually on December 31 and July 1
December 31, 2018:
Interest payment = $600,000 ($15 million * 4%)
Interest expense = $690,000 ($13.8 million * 5%)
Amortization of discounts = $90,000 ($690,000 - $600,000)
Fair value of bonds = $13.89million ($13.8m + $90,000)
