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?
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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Companies can issue long term debt instruments such as bond at a face value, at a premium over the face value or at a discount on face value.
When the issue price is higher than the face value of bonds, the bonds are said to be issued at a premium and when the issue price is less than the face value of bonds, the bonds are said to be issued at a discount.
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