B DF KLMNOPORS TU V Chapter 11, E8B 1. a. Cash received: b. Bonds Payable: c. The difference of $25,000 is called 2. a. Cash paid in interest: b. Amortization of bond premium: c. Interest expense: 3. a. Cash paid in interest: b. Amortization of bond premium: c. Interest expense: II II
Effective Interest Method
E8B. Danner Company sold $500,000 of 8 percent, 20-year bonds on April 1, 2014,
at 105. The semiannual interest payment dates are March 31 and September 30. The
market interest rate is 7.5 percent. The company’s fiscal year ends September 30. Use
the effective interest method to calculate the amortization.
1. With regard to the bond issue on April 1, 2014:
a. How much cash is received?
b. How much is Bonds Payable?
c. What is the difference between a and b called and how much is it?
2. With regard to the bond interest payment on September 30, 2014:
a. How much cash is paid in interest?
b. How much is the amortization?
c. How much is interest expense?
3. With regard to the bond interest payment on March 31, 2015:
a. How much cash is paid in interest?
b. How much is the amortization? (Round to the nearest cent.)
c. How much is interest expense?
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