Answer:
Desert Company
The TOTAL dollar amount of discount that was amortized during the entire first year (5/1/20 through 4/3/21) these bonds were outstanding is:
= $65,447.
Explanation:
a) Data and Calculations:
Face value of bonds = $15,000,000
Issue value (proceeds) 13,308,942
Discount on the bonds $1,691,058
Coupon rate = 8%
Effective interest rate = 10%
Period of bonds = 8 years
November 1, 2020:
Interest expense = $665,447 ($13,308,942 * 5%)
Cash payment = $600,000 ($15,000,000 * 4%)
Discount amortized $65,447
Bond outstanding value = $13,374,389 ($13,308,942 + $65,447)
May 1, 2021:
Interest expense = $668,719 ($13,374,389 * 5%)
Cash payment = $600,000 ($15,000,000 * 4%)
Discount amortized $68,719
Bond outstanding value = $13,443,108 ($13,374,389 + $68,719)
