Question

Oriole Co. sold $1,970,000 of 12%, 10-year bonds at 102 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Oriole uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017. (Round answer to 0 decimal places, e.g. 38,548.) Interest expense to be recorded\

Answer 1

The interest expenses to be reported for July 1, 2017 and December 31, 2017 is $116,230

Step-by-step explanation:

We begin by calculating cash interest on the bond

Cash interest on the bond = $1,970,000 × 12% × 6/12

= $118,200

We will also find the premium on bonds payable

Premium on bonds payable = (102 -100)

= 2%

Therefore, premium on bonds payable = $1,970,000 × 2%

= $39,400

Finding semi annual premium amortized for both July 1, 2017 and December 31 is ;

= $39,400 / 10×2

= $39,400 / 20

= $1,970

We will now calculate the interest expenses for July 1, 2017 and December 31

Interest expenses = Cash interest - Premium amortized

= $118,200 - $1,970

= $116,230