The City of Spartan's fiscal year ends on December 31. On October 1, 2020, the city issued $1,000,000 of 6%, 10-year term bonds with semiannual interest payments due on April 1 and October 1 each year, beginning on April 1, 2021. What amount of expense should the city recognize in its governmental activities journal for the years 2020 and 2021?

Question

Zack Riggs

Business

5 April, 01:58

The City of Spartan's fiscal year ends on December 31. On October 1, 2020, the city issued $1,000,000 of 6%, 10-year term bonds with semiannual interest payments due on April 1 and October 1 each year, beginning on April 1, 2021. What amount of expense should the city recognize in its governmental activities journal for the years 2020 and 2021?

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Answers (1)

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Eli Kline · Answer 1

Amount paid in 2020 = $0

Amount paid in 2021 = $60,000

Explanation:

Given:

Bond price = $1,000,000

Interest rate = 6%

1. Bond was issued on October 1, 2020, and interest will be payable on April 1 and October 1. So in the year 2020, there is no chance for payment.

Total payment for year 2020 = $0

2. In the year 2021 April, 1 and October 1 will come and the company made payment.

Total payment for year 2021 is:

Total payment for year 2021 = $1,000,000 * 6%

Total payment for year 2021 = $60,000