P11-7A Individual - issued by Rossillon Company. (1) The...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ANSWER KEY (a) (1) 2008 July 1 Cash. .......................................... 3,501,514 Discount on Bonds Payable. .................................. 498,486 Bonds Payable. ................. 4,000,000 (2) Dec. 31 Bond Interest Expense. ............ 175,076 ($3,501,514 X 5%) Discount on Bonds Payable. .......................... 15,076 Bond Interest Payable. ..... 160,000 ($4,000,000 X 4%) (3) 2009 July 1 Bond Interest Expense. ............ 175,830 [($3,501,514 + $15,076) X 5%] Discount on Bonds Payable. .......................... 15,830 Cash. .................................. 160,000 (4) Dec. 31 Bond Interest Expense. ............ 176,621 [($3,516,590 + $15,830) X 5%] Discount on Bonds Payable. .......................... 16,621 Bond Interest Payable. ....... 160,000 (b) Bonds payable. ................................................... $4,000,000 Less: Discount on bonds payable. .................. 450,959 * 3,549,041
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
*($498,486 – $15,076 – $15,830 – $16,621)
Background image of page 2
(c) Dear : Thank you for asking me to clarify some points about the bonds
Background image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: issued by Rossillon Company. (1) The amount of interest expense reported for 2009 related to these bonds is $352,451 ($175,830 + $176,621). (2) When the bonds are sold at a discount, the effective-interest method will result in less interest expense reported than the straight-line method in 2009. Straight-line interest expense for 2009 is $369,848 [$160,000 + $160,000 + ($24,924 + $24,924)]. (3) The total cost of borrowing is $3,698,486 as shown below: Semiannual interest payments ($4,000,000 X 4%) = $160,000; $160,000 X 20. ......... $3,200,000 Add: Bond discount ($4,000,000 $3,501,514). ........ 498,486 Total cost of borrowing. ....................................... $3,698,486 (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,...
View Full Document

This note was uploaded on 06/24/2011 for the course ACCOUNTING 281 taught by Professor Prof.robinson during the Spring '10 term at University of Phoenix.

Page1 / 3

P11-7A Individual - issued by Rossillon Company. (1) The...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online