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Bond Issue Costs and Premium or Discount Amortization

1. CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $12,860; (2) legal fees, $51,170, and (3) commissions paid to underwriter, $69,280.

2. George Gershwin Co. sold $2,106,000 of 12%, 9-year bonds at 102 on January 1, 2014. The bonds were dated January 1, 2014, and pay interest on July 1 and January 1. If Gershwin uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2014, and December 31, 2014.

3. Ron Kenoly Inc. issued $708,400 of 8%, 9-year bonds on June 30, 2014, for $554,992. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2014.

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Solution Summary

This solution illustrates which costs are capitalized as bond issue costs, and how to amortize a bond discount or premium using the straight-line and effective-interest methods. It even includes full amortization tables for each method.

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