[inviteyou]

How do they get 55 months? I calculated 52. Sept. x5 – Dec. x5 PLUS 4 years (48 months) = 52.

Dixon Co. incurred costs of $3,300 when it issued, on August 31, 20X5, five-year debenture bonds dated April 1, 20X5. Dixon uses the straight-line method to amortize bond issue costs. By what amount is 20X5 interest expense increased by the amortization of bond issue costs?

A. $220
B. $240
C. $495
D. $3,300
B is the correct answer.
Explanation: There are four years and seven months in the bond term (5 years less the 5 months from April 1 to August 31) or a total of 55 months. Thus, the 20X5 amortization of bond issue costs, is $240 [(4/55)$3,300]. The bonds were outstanding four months in 20X5.

[AusNat]

The bonds mature on 4/1/2009. Your calculation would have the bonds mature on December 31,20X8 – you need to add in another 4 months for Jan-Apr 2009.

[Earla Riopel (NYCARE)]

@Inviteyou MCQ: “How do they get 55 months? I calculated 52. Sept. x5 – Dec. x5 PLUS 4 years (48 months) = 52.
Dixon Co. incurred costs of $3,300 when it issued, on August 31, 20X5, five-year debenture bonds dated April 1, 20X5. Dixon uses the straight-line method to amortize bond issue costs. By what amount is 20X5 interest expense increased by the amortization of bond issue costs? A. $220 B. $240 C. $495 D. $3,300 B is the correct answer.
Explanation: There are four years and seven months in the bond term (5 years less the 5 months from April 1 to August 31) or a total of 55 months. Thus, the 20X5 amortization of bond issue costs is $240 [(4/55)$3,300]. The bonds were outstanding four months in 20X5.”

Hi. This is how I calculated:
30-Apr
31-May
30-Jun
31-Jul
31-Aug
30-Sep +1
31-Oct +1
30-Nov +1
31-Dec +1
+12
+12
+12
+12
31-Jan +1
28-Feb +1
31-Mar +1 = 55
Goodluck!:)

[inviteyou]

Ok, thank you. Very helpful explanations. I missed the dates the bonds mature. Since they mature on April 20×9 I am not counting the months that they weren't picked up, so to speak. Five years would be from April 20×5 TO April 20×9, five years, but they weren't issued until August 31st so I can't count or included April x5, May x5, June x5, July x5 and Aug. x5 in my calculation.

[Author]

Replies