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ch14-5th_part_ii_outline - DEBT INSTRUMENT EXAMPLES 1 Alpha...

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DEBT INSTRUMENT EXAMPLES 1. Alpha sold and issued to Beta $200,000, 8% (payable semiannually on June 30 and December 31) three year bonds. The bonds were dated and sold on January 1, 2004 at a market interest rate of 10%. The accounting period for each company ends on December 31. ISSUE PRICE EFFECTIVE INTEREST AMORTIZATION Date Interest Expense/Revenue @ Market Rate- 5% Cash Interest @ Stated Rate- 4% Discount Amortization BV of Debt 1/1/04 6/30/04 12/31/04 6/30/05 12/31/05 6/30/06 12/31/06 STRAIGHT-LINE AMORTIZATION Date Interest Expense/Revenue @ Market Rate- 5% Cash Interest @ Stated Rate- 4% Discount Amortization BV of Debt 1/1/04 6/30/04 12/31/04 6/30/05 12/31/05 6/30/06 12/31/06 1
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2. Gamma sold and issued to Delta $200,000, 8% (payable semiannually on June 30 and December 31) three year bonds. The bonds were dated and sold on January 1, 1990 at a yield interest rate of 6%. The accounting period for each company ends on December 31. ISSUE PRICE EFFECTIVE INTEREST AMORTIZATION Date Interest Expense/Revenue @ Market Rate- 3% Cash Interest @ Stated Rate- 4% Premium Amortization
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