On January 1, 2009, Clinton Corporation sold (issued) a $1,000, ten-year, 10% bo

Question

On January 1, 2009, Clinton Corporation sold (issued) a $1,000, ten-year, 10% bonds payable (interest payable each December 31).
For the three assumptions below, complete the following schedule assuming the accounting year ends December 31, and straight-line amortization is used (see page 532 for a reference):


Transaction Sale @ 100% Sales @ 96% Sales @ 104%
Assumption #1 Assumption #2 Assumption #3


A. Cash received on issuance
B. Interest expense for year 2009
C. Net bond carrying value on the December 31, 2010 balance sheet

Explanation / Answer

#1 Cash 1,000 Interest expense 100 (1,000*.10) Net carrying value 1,000 #2 Cash 960 Interest expense 104 (1,000*10 plus 40/10=4 amort of bond discount) Net carrying value at 12/31/2010 968 (960 plus 2 years of discount amort at 4 per year) #3 Cash 1040 Interest expense 96 (1,000*.10 less 40/10=4 amort of bond premium) Net carrying value at 12/31/2010 1032 (1040 less 2 years of premium amort)

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