On January 1, 2005, a company issued $300,000 of 10%, 3 -year bonds for $285,150

Question

On January 1, 2005, a company issued $300,000 of 10%, 3 -year bonds for $285,150, providing a yield rate of 12%. The bonds pay interest semiannually on June 30 and December 31. Complete the following amortization schedule.

Interest

Payment

Interest

Expense

Discount

Amortization

Bond

Carrying

Amount

Date

Interest

Payment

Interest

Expense

Discount

Amortization

Discount
Balance

Bond

Carrying

Amount

Jan. 1, 2005 14,850 $285,150 June 30, 2005 Dec. 31, 2005 June 30, 2006 Dec. 31, 2006 June 30, 2007 Dec. 31 2007

Explanation / Answer

Amortization Schedule

Effective interest rate method:

Using Straight-line method:

Date Interest payment Interest expense Discount amortization Discount balance Bond carrying amount $ $ $ $ $ Jan 1 2005 14,850 285,150 June 30, 2005 15,000 17,109 2,109 12,741 287,259 December 31, 2005 15,000 17,236 2,236 10,505 289,495 June 30, 2006 15,000 17,370 2,370 8,135 291,865 December 31, 2006 15,000 17,512 2,512 5,623 294,377 June 30, 2007 15,000 17,663 2,663 2,960 297,337 December 31, 2007 15,000 17,960 2,840 - 300,000

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