Question

On January 2, 20X4, West Co. issued 9% bonds in the amount of $500,000, which mature on January 2, 20X24. The bonds were issued for $469,500 to yield 10%. Interest is payable annually on December 31. West uses the interest method of amortizing bond discount. In its June 30, 20X4, balance sheet, what amount should West report as bonds payable?

Answer 1

Answer:

$470,475

Explanation:

We first calculate interest for 6 months

= 0.09 x 6/12

= 4.5%

Yield for 6 months

= 10% *6/12

= 5%

Interest at 4.5%

= 500000 x 4.5%

= 22500

Interest at 5%

= 469500 x 5%

= 23475

Amortization

= Interest expense - interest payment

= 23475 - 22500

= 975

Issue price of bond + amortization

= 469500 + 975

= $470,475