On January 1, 2020, Madge Airways issued $3,500,000 of par value bonds for $3,200,000

Accounting Dec 01, 2020

On January 1, 2020, Madge Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $15,000 every six months. The life of these bonds is: 15 years 10 years 30 years o 20 years

Expert Solution

Because market rate of interest is higher than the contact rate of interest ,therefore bond will be issue on discout.

Discount on Bond payable = $3,500,000 - $3,200,000 =$300000

No. of semi-annual amortization installment period

=$300000/$15000

=20

The life of these bond = 20/2 = 10 Years (Answer)

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote