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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise Interest Payments and Interest Expense for Bonds (Straight Line)

On January 1, 2020, Perry Manufacturing issued bonds with a total face amount of $3,000,000 and a stated rate of 9%.

Required:

  1. Calculate the interest expense for 2020 if the bonds were sold at par.
  2. Calculate the interest expense for 2020 if the bonds were sold at a premium and the straight- line premium amortization for 2020 is $12,000.

3. Calculate the interest expense for 2020 if the bonds were sold at a discount and the straight- line discount amortization for 2020 is $33,000.

To determine

(a)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Interest Expense for 2020 when bonds were issued at par.

Explanation

Given:

Bonds of $3,000,000 face value with 6% stated rate.

When issued at par, there exists no premium or discount amortization. Therefore, borrower is only liable to pay the interest to the lender...

To determine

(b)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Interest Expense for 2020 when bonds were issued at premium.

To determine

(c)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Interest Expense for 2020 when bonds were issued at discount.

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