Ask Question
3 February, 16:20

a company issues a 10000 8 percent 10 year bond on jan 1 year 1 for 10420. Interest is paid annually on jan 1. If the company uses the straight line method of amortization of bond discounts and premiums, the amount of bond interest expense to be recognized in year 1 would be

+2
Answers (1)
  1. 3 February, 19:39
    0
    The interest expense to be recognize in years 1 amounts to be 792 dollars.

    Explanation:

    As per matching principle the interest expense to be recognized in income statement is calulated using effective rate of return. The effective rate is calculated using IRR method

    For IRR purpose the cashflow will be taken as given below

    Time (year) Cashflow

    0 10,420

    1-9 800

    10 10,800

    By hit and trail method IRR = 7.6 %

    So interest expense to be recognized = 7.6% * 10,420 = 792 dollars

    (Standard applied IFRS 9)
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “a company issues a 10000 8 percent 10 year bond on jan 1 year 1 for 10420. Interest is paid annually on jan 1. If the company uses the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers