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# Bonds: Interest Expense, amortization of premium & discount

1. Rainey Co. issued \$7 million face amount of 8.25%, 10-year bonds on April 1, 2010. The bonds pay interest on an annual basis on March 31 each year.

Calculate the interest expense that Rainey Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2010, assuming that the premium of \$67,000 is amortized on a straight-line basis. (Round to nearest whole number.)

2. ARC Co. issued \$3.10 million face amount of 8%, 10-year bonds on June 1, 2010. The bonds pay interest on an annual basis on May 31 each year.

Calculate the interest expense that ARC Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2010, assuming that the discount of \$361,000 is amortized on a straight-line basis.

#### Solution Preview

1. Amortization every year = 67000/10 = \$6,700

April-Sept is 6 months, so calculate interest for 6 ...

#### Solution Summary

The solution computes interest expenses and deals with amortization of premium & discount on bonds.

\$2.19