On July 1, Year 1, Maitland Corporation issued bonds with a face value of $200,000, a stated rate of interest of 8% bonds, and a 5-year term to maturity. Interest is payable in cash semiannually on June 30 and December 31 of each year. (Hint: There are 20 interest payments.) Maitland uses the straight-line method to amortize bond discounts and premiums. Maitland made the following entry relating to the first interest payment made on December 31, Year 1:Interest expense7,760?Premium on bonds payable240? Cash?8,000Required:Determine the amount of cash that Maitland received for the issuance of the bonds.
What will be an ideal response?
$204,800
Amortization of premium of $240 = Premium (the unknown) ÷ 20 amortization periods
Premium = $240 × 20 = $4,800
Amount received at issuance = $200,000 face value + $4,800 premium = $204,800
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