Chapter 10 – Reporting and Analyzing Long-Term Liabilities
Exercise 10-4 (30 minutes)
1. Premium = Issue price – Par value = $409,850 – $400,000 = $9,850
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $26,000* ……………
$156,000
Par value at maturity ………………….
400,000
Total repaid ………………………………..
556,000
Less amount borrowed …………………
(409,850)
Total bond interest expense ………….
$146,150
*$400,000 x 0.13 x ½ = $26,000
or
Six payments of $26,000 ……………….
$156,000
Less premium……………………………….
(9,850)
Total bond interest expense ………….
$146,150
3. Straight-line amortization table ($9,850/6 = $1,642)
Semiannual
Interest Period–End
Unamortized
Premium
Carrying
Value
1/01/2013
$9,850
$409,850
6/30/2013
8,208
408,208
12/31/2013
6,566
406,566
6/30/2014
4,924
404,924
12/31/2014
3,282
403,282
6/30/2015
1,640*
401,640
12/31/2015
0
400,000
*Adjusted for rounding.
