On January 1, 2016, a company issues 3-year bonds with a face value of $130,000

Question

On January 1, 2016, a company issues 3-year bonds with a face value of $130,000 and a stated interest rate of 7%. Because the market interest rate is 5%, the company receives $137,080 for the bonds Required: Fill in the table assuming the company uses effective-interest bond amortization. (Round your answers to the nearest whole dollar.) Table Interest Expense Amortized Premium Carrying Value Premium on Period Ended Bonds Payable Bonds Payable Cash Paid $130,000 130,000 130,000 130,000 $ 130,000 130,000 130,000 130,000 01/01/2016 12/31/2016' $ 9,100 S 9,100 9,100 6,854 $ 2,246 9,100 9,100 12/31/2017 12/31/2018

Explanation / Answer

Answer

Period Ended

Cash Paid [A=130000 x 7%]

Interest expense [B= F x 5%]

Amortised Premium [C=A – B]

Bonds payable [D]

Premium on Bonds payable [E=B – C]

Carrying Value [F= F – C]

01-Jan-16

$130000

$7080

$137080

31-Dec-16

$9100

$6854

$2246

$130000

$4834

$134834

31-Dec-17

$9100

$6742

$2358

$130000

$2476

$132476

31-Dec-18

$9100

$6624

$2476

$130000

$-1

$129999

* $1 is the rounding off Difference

Period Ended

Cash Paid [A=130000 x 7%]

Interest expense [B= F x 5%]

Amortised Premium [C=A – B]

Bonds payable [D]

Premium on Bonds payable [E=B – C]

Carrying Value [F= F – C]

01-Jan-16

$130000

$7080

$137080

31-Dec-16

$9100

$6854

$2246

$130000

$4834

$134834

31-Dec-17

$9100

$6742

$2358

$130000

$2476

$132476

31-Dec-18

$9100

$6624

$2476

$130000

$-1

$129999

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