Jansen Company issued bonds with $150,000 face value on January 1, 2013. The bonds were issued at 102 and carried a 5-year term to maturity. They had a 9% stated rate of interest that was payable in cash on December 31st of each year. Jansen uses the straight-line method of amortization. Based on this information alone, the recognition of interest expense on December 31, 2013 would act to:

Question

Quizplus · Accepted Answer

$150,000 x 102% = $153,000 issue price; $3,000 premium/5 years = $600/year amortization; $150,000 x 9% = $13,500 interest payment; $13,500 - $600 = $12,900 interest expense; The event will decrease assets (cash) by $13,500, decrease liabilities (premium on bonds payable) by $600, and decrease equity (interest expense) by $12,900.

Jansen Company Issued Bonds with $150,000 Face Value on January