Question

On June 30, 2018, Hardy Corporation issued $10.5 million of its 8% bonds for $9.5 million. The bonds were priced to yield 10%. The bonds are dated June 30, 2018. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2018?

Answer 1

The discount will be reduced by 55,000

December 31h 2018

Interest expense 475,000

Cash 420,000

Discount on bond Payable 55,000

Step-by-step explanation:

Hardy Corporation

face vale 10,500,000 bonds 8%

issued 9,500,000 were priced to yield 10%

Discount 1,000,000

carrying value x effective rate/2 = interest expense

9,500,000 x 10%/2 = 475,000 interest expense

face value x bond rate /2 = cash proceeds

10,500,000 x 8%/2 = (420,000 cash proceeds)

amortization= interest expense - cash proceeds

amortization on discount 55,000