Question

Presented below are two independent situations. a. George Gershwin Co. sold $2,000,000 of 10%, 10-year bonds at 104 on January 1, 2020. The bonds were dated January 1, 2020, and pay interest on July 1 and January 1. If Gershwin uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2020, and December 31, 2020. by. Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for $562,500. This price provided a yield of 10% on the bonds. Interest is payable semi annually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2020.

Answer 1

Check the explanation

Step-by-step explanation:

Bond cost 2000000

Bond discount 10%

Bond years 10

Bond yield 4%

Interest (Jan-June) 100000

Less: Premium Amortisation (4000) (2000000*0.04)/10 *6/12

Interest expense 96000

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Bond cost 562500

Bond discount 9%

Bond years 10

Bond yield 10%

Interest (June 30-Oct 30) - ((1.10)^4/12) - 1=3.228%

Interest expense= 562500*3.228% =18157.5

Answer 2

(a) Bond cost 2000000

Bond discount 10%

Bond years 10

Bond yield 4%

Interest (Jan-June) 100000

Less: Premium Amortisation (4000) (2000000*0.04)/10 *6/12

Interest expense 96000

(b) Bond cost 562500

Bond discount 9%

Bond years 10

Bond yield 10%

Interest (June 30-Oct 30) - ((1.10)^4/12) - 1=3.228%

Interest expense= 562500*3.228% =18157.5