Question

On January 1, 2012, LED issues bonds with a face value of $300,000. These bonds have a stated interest rate of 4% and interest is paid annually on December 31. The bonds mature in four years. The market interest rate at the date the bonds are issued is 5%.
Required
a. Determine the amount of discount on the bonds at issuance.
b. How much of the discount will be amortized in the first year under (1) the straight-line method and (2) the effective interest method?
c. Does interest expense each year differ under the straight-line and effective interest methods of amortization?
d. Does total interest expense over the life of the bonds differ under the straight-line and effective interest methods of amortization?


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  • CreatedJuly 16, 2015
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