Question

On October 1, 2020 Sheffield Corp. issued 5%, 10-year bonds with a face value of $6140000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2020 income statement of Sheffield Corp. would be:_________

Answer 1

Answer: $70610

Step-by-step explanation:

Following the information given, the issue price of the bond will be:

= $6,140,000 × 1.04

= $6,385,600

The premium on bonds payables will be:

= $6,385,600 - $6,140,000

= $245,600

Cash interest Payables will be:

= 6,140,000 × 5% × 3/12

= $76,750

Bond Premium amortization for Each Year will be:

= 245,600 / 10

= $24,560

Then, the premium amortized will be:

= $24,560 × 3/12

= $6,140

Therefore, the interest expenses on Dec 31 will be:

= Cash interset Payables - Premium amortized

= $76,750 - $6,140

= $70,610