ACC 363 P11-7A - bonds issued by Strigel Chemical Company....

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*PROBLEM 11-7A (a) (1) 2006 July 1 Cash. .......................................... 5,679,533 Bonds Payable. ................. 5,000,000 Premium on Bonds Payable. .......................... 679,533 (2) Dec. 31 Bond Interest Expense. ............ 227,181 ($5,679,533 X 4%) Premium on Bonds Payable. .................................. 22,819 Bond Interest Payable. ..... 250,000 ($5,000,000 X 5%) (3) 2007 July 1 Bond Interest Expense. ............ 226,269 [($5,679,533 – $22,819) X 4%] Premium on Bonds Payable. ................................... 23,731 Cash. .................................. 250,000 (4) Dec. 31 Bond Interest Expense. ............ 225,319 [($5,656,714 – $23,731) X 4%] Premium on Bonds Payable. ................................... 24,681 Bond Interest Payable. ..... 250,000 (b) Bonds payable. ............................................ 5,000,000 * Add: Premium on bonds payable. ............ 608,302 * 5,608,302 *($679,533 – $22,819 – $23,731 – $24,681)
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*PROBLEM 11-7A (Continued) (c) Dear : Thank you for asking me to clarify some points about the
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Unformatted text preview: bonds issued by Strigel Chemical Company. (1) The amount of interest expense reported for 2007 related to these bonds is $451,588 ($226,269 + $225,319). (2) When the bonds are sold at a premium, the effective-interest method will result in more interest expense reported than the straight-line method in 2007. Straight-line interest expense for 2007 is $432,046 [$250,000 + $250,000 ($33,977 + *$33,977)]. *$679,533 20 (3) The total cost of borrowing is as shown below: Semiannual interest payments ($5,000,000 X 10% X 1/2) = $250,000 X 20. .............. $5,000,000 Less: Bond premium ($5,679,533 $5,000,000). ...... 679,533 Total cost of borrowing. ....................................... $4,320,467 (4) The total bond interest expense over the life of the bonds is the same under either method of amortization. If you have other questions, please contact me. Sincerely,...
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This note was uploaded on 03/13/2010 for the course ACC ACC 363 taught by Professor Mariaburgos during the Spring '09 term at University of Phoenix.

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ACC 363 P11-7A - bonds issued by Strigel Chemical Company....

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