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14 November, 19:01

On January 1, Year 1, Price Co. issued $190,000 of five-year, 6 percent bonds at 96½. Interest is payable annually on December 31. The discount is amortized using the straight-line method. Required a. Determine the amount of cash proceeds received by Price Co. on January 1, Year 1. b. Calculate the amount of interest expense reported on the December 31, Year 2, income statement. c. What is the carrying value of the bond liability as of December 31, Year 2?

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  1. 14 November, 20:13
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    a) Cash received = $183,350

    b) Interest expense = $12,730

    c) Carrying value = $186,010

    Explanation:

    As per the data given in the question,

    a) Face value of bond = $190,000

    Issued at = 0.965

    Cash received = $190,000 * 0.965

    = $183,350

    b) Discount on bonds payable = $190,000 - $183,350

    =$6,650

    Annual amortization of discount on bonds payable = $6,650:5

    = $1,330

    Cash interest = $190,000*0.60

    = $11,400

    Interest expenses = $11,400+$1,330

    = $12,730

    c)

    carrying value = $183,350 + ($1,330 * 2)

    = $186,010
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