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魚兒 發問時間: 社會與文化語言 · 8 年前


Herman Company received proceed of $188,500 on 10-year ,8% bonds issued on

January 1 ,2010.The bonds had a face value of $200,000,pay interest semi-annually

on June 30 and December 31,and have a call price of 101, Herman uses the Straight-line method of amortization.What is the amount of interest expense Herman will

show with relation to these bonds for year ended December 31,2012?






1 個解答

  • James
    Lv 5
    8 年前

    Since the proceeds Herman received for the bonds were less than the bonds’ face value, we know the bonds were sold at a discount. The bonds’ discount needs to be amortized over the life of the bonds, and each year’s amortized amount needs to be treated as additional interest expense.

    The bonds’ discount amount is $11,500, which is the difference between the face amount ($200,000) and the proceeds amount ($188,500.) When the discount is amortized on a straight-line basis, each year’s amortized amount is $1,150 (or one tenth of $11,500.)

    Since the coupon rate is 8%, Herman needs to make two interest payments totaling $16,000 (or $200,000 times 8%) in each year of the bonds’ life.

    Adding the amortized discount amount of $1,150 and the coupon interest payments of $16,000 for any given year gives us the annual interest expense of $17,150.

    The answer is C.

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