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kodGreya [7K]
3 years ago
13

A corporation issues $92,000, 8%, 5-year bonds on January 1, for $96,140. Interest is paid semiannually on January 1 and July 1.

If the corporation uses the straight-line method of amortization of bond premium, determine the amount of bond interest expense to be recognized on July 1.
Business
1 answer:
PilotLPTM [1.2K]3 years ago
5 0

Answer:

$3,266

Explanation:

First we must calculate the total amount received as bond premium:

$96,140 - $92,000 = $4,140

This should be amortized over 10 periods (= 5 years x 2 semiannual payments), so we must amortize $414 per period.

The coupon that the company pays = $92,000 x 8% x 1/2 = $3,680

So the interest to be recognized is = $3,680 - $414 = $3,266

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