Problem: On July 1, 2006, S. Strigel Chemical Company issued $5,000,000 face value, 10%, 10-year bonds at $5,679,533. This price resulted in an 8% effective-interest rate on the bond& Strigel uses the effective-interest method to amortize bond premium or discount.The bonds pay semiannual interest on each July 1 and January 1.
Instructions:
(Round all computations to the nearest dollar.)
Question 1: Show the proper balance sheet presentation for the liability for bonds payable on the De-cember 31.2007. balance sheet.
Question 2: Provide the answers to the following questions in letter form.
(A) What amount of interest expense is reported for 2007?
(B) Would the bond interest expense reported in 2007 be the same as greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
(C) Determine the total cost of borrowing over the life of the bond.
(D) Would the total bond interest expense be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?