Question

Asked Apr 9, 2019

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months. What is the amount the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue?

Step 1

**Calculation of Amount of Bond Discount:**

The bond premium is $10,087 for six months. The bond premium will be doubled for a year which appears as $20,174 ($10,087*2) since the bond is paid on semi-annual or on six month basis.

Step 2

**Calculation of Book Value of the Bond:**

Step 3

**Calculation of Interest Payable:**

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