On January 1 of this year, Houston Company issued a bond with a face value of $1

Question

On January 1 of this year, Houston Company issued a bond with a face value of $16,500 and a coupon rate of 6 percent. The bond matures in 3 years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 5 percent. Houston uses the effective-interest amortization method. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: 1. Complete a bond amortization schedule for all three years of the bond's life. (Enter all values as positive values.) Cash Interest Interest Book Value of Bond Premium Date Jan. 01, Year 1 Dec. 31, Year 1 Dec. 31, Year 2 Dec. 31, Year 3 2. What amounts will be reported on the income statement and balance sheet at the end of Year 1 and Year 2? Year 1 Year 2 December 31 Interest expense Bond liability

Explanation / Answer

Issue Price: Par value of Bonds 16500 Annual Interest on bonds @ 6% 990 PV for maturity at 5% 0.8638 PV annuity for Interest at 5% for 3 years 2.7232 Present value of maturity 14252.7 Present value of Interest 2695.968 Issue price of bonds 16949 Amortization Schedule: Date cash Interest Premium Book Value Interest Expense Amortized of bonds Jan1 Year1 16949 Dec31 Year1 990 847 143 16806 Dec31 YEar2 990 840 150 16656 Dec 31 Year3 990 834 156 16500 Req 2: 31-Dec YEar1 YEar2 Interest expense 847 840 Bonds liability 16806 16656

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