Question
On January 1, 2013, Drennen, Inc., issued $2.6 million face amount of 11-year, 18% stated rate bonds when market interest rates were 16%. The bonds
On January 1, 2013, Drennen, Inc., issued $2.6 million face amount of 11-year, 18% stated rate bonds when market interest rates were 16%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2022
Required: | |
a. | Calculate the proceeds (issue price) of Drennen, Inc.'s, bonds on January 1, 2013, assuming that the bonds were sold to provide a market rate of return to the investor.(Round your answer to the nearest whole dollar amount. (e.g., 32)) |
b.1 | Assume instead that the proceeds were $2,554,000. Use the horizontal model to record the payment of semiannual interest and the related discount amortization on June 30, 2013, assuming that the discount of $46,000 is amortized on a straight-line basis. (Enter decreases to account balances with a minus sign.) |
b.2 | Assume instead that the proceeds were $2,554,000. Record the journal entry to show the payment of semiannual interest and the related discount amortization on June 30, 2013, assuming that the discount of $46,000 is amortized on a straight-line basis. |
c.
If the discount in part b were amortized using the compound interest method, would interest expense for the year ended December 31, 2013, be more than, less than, or equal to the interest expense reported using the straight-line method of discount amortization? |
Interest expense will be more.
Interest expense will be the same.
Interest expense will be less.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started