Question

Asmus Company issued $300,000 face value of bonds on January 1, 2013. The bonds had a 6 percent stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31, 2013. The bonds were issued at 101 ½.

Required
a. Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2013 bond issue and (2) the December 31, 2013 recognition of interest expense, including the amortization of the premium and the cash payment, affects the company’s financial statements. Use + for increase, – for decrease, and NA for not affected.


b. Determine the carrying value (face value plus premium) of the bond liability as of December 31, 2013.
c. Determine the amount of interest expense reported on the 2013 income statement.
d. Determine the carrying value of the bond liability as of December 31, 2014.
e. Determine the amount of interest expense reported on the 2014 incomestatement.


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  • CreatedOctober 26, 2013
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