Exercise 9-62 (Algorithmic) Completing a Bond Amortization Table (Effective Inte

Question

Exercise 9-62 (Algorithmic)
Completing a Bond Amortization Table (Effective Interest Rate Method)

Cagney Company sold $220,000 of bonds on June 30, 2010. A portion of the amortization table appears below.

1. Indicate the stated interest rate on these bonds.
  %

2. Calculate the effective annual interest rate on these bonds (rounded to the nearest 0.1 percent).
  %

3. Determine the interest expense and discount amortization for the interest period ending December 31, 2012. If required, round your answers to the nearest whole dollar.

4. Determine the liability balance after the interest payment is recorded on December 31, 2012. If required, round your answer to the nearest whole dollar.
$   

Period Cash Payment (Credit) Interest Expense (Debit) Discount on Bonds Payable (Credit) Discount on Bonds Payable Balance Carrying Value 12/31/11 $9,900 $10,177 $277 $2,340 $217,660 6/30/12 9,900 10,230 330 2,010 217,990 12/31/12 ? ? ? ? ?

Explanation / Answer

Req 1: Par value of Bonds 220000 Semi annual interest paid 9900 Interest rate for semi annual perriod 4.50% (9900/220000*100) Annual Stated interest rate 9.00% Req 2: Carrying value on 31.12.11 217660 Interest expense on 30.06.12 10230 Market rate for 6 months 4.70% (10230/217660*100) Annual Market rate of interest 9.40% Req 3: Period Cash payment Interest Discount Balance in Ccarrying Expense On bonds Discount on bonds Value 3112..12 9900 10246 346 1664 218336 Req 4: The Liability after interest of Dec 31 2012: Bonds payable-Gross 220000 Less: Discount on bonds payable 1664 Net liability of Bonds payable 218336

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