On July 1, 2010, Remington Chemical Company issued $4,000,000 face value, 10%, and 10-year bonds at $4,543,627.This price resulted in an 8% effective-interest rate on the bonds. Remington uses the effective-interest method to amortize bond premium or discount. The bonds pay semi-annual interest on each July 1 and January 1. Required: (b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2011, balance sheet. (c) Provide the answers to the following questions in letter form. (1) What amount of interest expense is reported for 2011? (2) Would the bond interest expense reported in 2011 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used? (3) Determine the total cost of borrowing over the life of the bond. (4) Would the total bond interest expense be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?
On July 1, 2010, Remington Chemical Company issued $4,000,000 face value, 10%, and 10-year bonds at $4,543,627.This price resulted in an 8% effective-interest rate on the bonds. Remington uses the effective-interest method to amortize bond premium or discount. The bonds pay semi-annual interest on each July 1 and January 1.
Required:
(b) Show the proper balance sheet presentation for the liability for bonds payable on the
December 31, 2011, balance sheet.
(c) Provide the answers to the following questions in letter form.
(1) What amount of interest expense is reported for 2011?
(2) Would the bond interest expense reported in 2011 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
(3) Determine the total cost of borrowing over the life of the bond.
(4) Would the total bond interest expense be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?
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