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ACCOUNTING BONDS PAYABLE RECORD ISSUANCE AND PREMIUM AMORTIZATION

KAYE CO ISSUED $1,000,000 FACE AMOUNT OF 11% 20 YEAR BONDS ON APRIL 1 2004. THE BONDS PAY INTEREST ON ANNUAL BASIS ON MARCH 31 EACH YEAR.

A. ASSUME THE MARKET INTEREST RATES WERE SLIGHTLY LOWER THAN 11% WHEN THE BONDS WERE SOLD. WOULD THE PROCEEDS FROM THE BOND ISSUE HAVE BEEN MORE THAN, LESS THAN OR EQUAL TO THE FACE AMOUNT? EXPLAIN.
B.INDEPENDENT OF YOUR ANSWER TO PART A, ASSUME THAT THE PROCEEDS WERE 1,080,000. uSE THE HORIZONTAL MODEL TO SHOW EFFECT OF ISSUING THE BONDS.
C. CALCULATE THE INTEREST EXPENSES THAT KAYE CO. WILL SHOW WITH RESPECT TO THESE BONDS IN ITS INCOME STATEMENT FOR THE FISCAL YEAR ENDED SEPTEMBER 30,2004, ASSUMING THAT THE PREMIUM OF $80,000 IS AMORTIZED ON STRAIGHT LINE BASIS.

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