159. Patriot Naval Supply Company issued five-year 7% bonds with a face value of $25,000, for $26,046 on January 1, 2011 when the market (effective) rate of interest was 6%. The bonds pay annual interest each December 31. Patriot uses the effective interest method for amortization of premium or discount on bonds payable.
Required:
a) What is the annual amount of cash that Patriot will pay out for interest?
b) What amount of interest expense should Patriot recognize for 2011?
c) What is the carrying amount of the liability on December 31, 2011?
d) What is the total amount of interest that Patriot will record in interest expense over the life of the bond?
160. Heather Corporation issued $100,000 in bonds payable on January 1, 2011. The bonds had a stated interest rate of 8%, and the market interest rate at the time was 7%. Assuming that the bonds were issued at 106.5:
a) What was the amount of premium on the bonds when they were issued?
b) Heather Corporation uses the effective interest method to amortize premium or discount on bonds payable. What was the amount of interest expense for 2011, and what was the amount of premium amortized for the year?