Mel issued $10,000,000 of 4%, 10-year term bonds on 01-01-18 when the market rate for similar bonds
Question:
Mel issued $10,000,000 of 4%, 10-year term bonds on 01-01-18 when the market rate for similar bonds was 4.5%. The bonds were dated 01-01-18 with interest payable on January 01 and July 01. Upon issuing the bonds, Mel incurred and paid $35,000 of bond issuance costs. Mel only prepares AJEs every December 31. Mel uses the effective interest method to amortize any bond discount or premium.
• What amount (net) did Mel receive upon issuing these bonds? Round your answer to the nearest dollar.
• What effective interest rate should Mel use to amortize any bond discount or bond premium? State your interest rate using AT LEAST five digits to the right of the decimal point, e.g., 3.25793%.
• Using the effective interest rate you calculated above, what amount should Mel record as interest expense for the six-month period 01-01-18 to 06-30-18? Round your answer to the nearest dollar.
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach