Question

Otter Products Inc. issued bonds on January 1,2019. Interest is to be paid semi-annually other information is as follows: term in years: 2 face value of bonds $200,000 issue price: $206,000 specified interest rate each payment period 6% Required:

a. the amount of interest paid in cash every payment period
b. the amount of amortization to be recorded at each interest payment date (use the straight-line method)

Answer 1

Interest paid in cash every payment period for Otter Products Inc.'s bond is $6,000. The amortization amount to be recorded at each interest payment, using the straight-line method, is $1,500 per payment period.

Step-by-step explanation:

The subject of this question is about computing cash interest payments and bond amortizations using the straight-line method in the context of bond issuance in business accounting.

Cash Interest Payment Calculation

The amount of interest paid in cash every payment period would be calculated as:

Interest Payment = Face Value of Bonds × (Specified Interest Rate per Payment Period).

Interest Payment = $200,000 × 6% = $12,000 per year, or $6,000 semi-annually.

Bond Amortization Calculation

The amount of amortization to be recorded at each interest payment date is calculated using the straight-line method:

Amortization = (Issue Price - Face Value) / Number of Payment Periods.

Amortization = ($206,000 - $200,000) / 4 = $1,500 per payment period.