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# Cupola Fan Corporation issued 10%, \$600,000, 10-year bonds for \$570,o00 on June 30, 2021. Debt issue costs were \$3,500. ...

Cupola Fan Corporation issued 10%, \$600,000, 10-year bonds for \$570,o00 on June 30, 2021. Debt issue costs were \$3,500. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for \$575,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. Transcribed: Cupola Fan Corporation issued 10%, \$600,000, 10-year bonds for \$570,o00 on June 30, 2021. Debt issue costs were \$3,500. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for \$575,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Bonds refers to the fixed income debt which represents loan made by an investor to a borrower. It is used by the government ,companies, municipalities etc. Debt holders, creditors or issuers are the owners of bonds. Working Note:

• Interest is computed by :

\$ 600,000 $×\frac{10}{100}$ = \$ 60,000 per annum.

\$ 60,000 / 2 as interest paid is semi -annual on ever 31 December and 30 June.

• Discount = \$ ( 600,000- 570,000)

= \$ 30,000

• Discount + Debt Issue Cost = \$ ( 30,000+ 3,500)

= \$ 33,500.

• Amortization amount per annum = \$ 33,500 $×\frac{10}{100}$

= \$ 3,350

• Semi -annual amortization amount = \$ 3,350/2

= \$1,675

• Bond Payable = \$ ( 570,000 + 1,675 + 1,675)

=\$ 573,350

• Loss on early extinguishment =  \$ ( 575,000- 573,350)

=\$ 1,650

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