Respuesta :
Answer:
Premium on the issue is $6,931
Bond interest expense is $10,343.79
Bond carrying value is $114,474.79
Explanation:
The premium on the day of issue is the bonds' cash proceeds less the face value.
Cash proceeds is $114,931
Face value is $108,000
Premium =$114,931-$108,000=$6,931
Interest expense at December year one is the cash proceeds from the bondholders multiplied by the bond yield to maturity of 9% as shown below
interest expense=$114,931*9%=$10,343.79 Â
The bond carrying value at the end of the year is the cash proceeds plus the interest expense less coupon payment as below:
Carrying value=$114,931+$10,343.79-($108,000*10%)=$114,474.79 Â
a. The amount of the Bonds premium on January 1, Year 1 is $6,931.
b. The amount of the interest expense recognized on December 31, Year 1 is $8,957.59.
c. The carrying value of the bond liability on December 31, Year 1 is $113,088.59.
Data and Calculations:
Bonds Face value = $108,000
Bonds Proceeds = $114,931
Bonds Premium = $6,931 ($114,931 - $108,000)
Maturity period = 10 years
Issuance date = January 1, Year 1
Coupon interest rate = 10%
Effective interest rate = 11%
Interest Payment = annually on December 31
December 31, Year 1
Cash payment = $10,800 ($108,000 x 10%)
Interest Expense = $12,642.41 ($114,931 x 11%)
Amortization of premium = $1,842.41 ($12,642.41 - $10,800)
Interest expense recognized = $8,957.59 ($10,800 - $1,842.41)
Carrying value of bond liability = $113,088.59 ($114,931 - $1,842.41)
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