E10-10 Preparing a Bond Amortization Schedule for a Bond Issued at a Discount an
ID: 2531341 • Letter: E
Question
E10-10 Preparing a Bond Amortization Schedule for a Bond Issued at a Discount and Determining Reported Amounts LO10-4 On January 1 of this year, kuta Company issued a bond with a face value of $170,000 and a coupon rate of 5 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 6 percent. Ikuta 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 Cash Interest Interest Expe Discount Amortization Book Value of Bond Date nse Jan. 01, Year 1 Dec. 31, Year 1 Dec. 31, Year 2 Dec. 31, Year 3 $ 8,500S142,735 $ 8,500 $ 8,500 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 liabilityExplanation / Answer
Answer
Date
Cash Interest
Interest expense
Discount amortisation
Book Value of Bond
(A=$170000 x 5%)
(B= D x 6%)
(C= B – C)
(D= D + C)
01-Jan
$ 1,65,456See Working
31-Dec
$ 8,500
$ 9,927
$ 1,427
$ 1,66,883
31-Dec
$ 8,500
$ 10,013
$ 1,513
$ 1,68,396
31-Dec
$ 8,500
$ 10,104
$ 1,604
$ 1,70,000
Dec-31
Year 1
Year 2
Interest expense
$ 9,927
$ 10,013
Bond Liability
$ 1,66,883
$ 1,68,396
--PV factor of 6% for the 3rd year = [1/(1.06)3] = 0.83961….
--PV of $170,000 = 170000 x 0.83961 = $ 142,735 (A)
--PV Annuity factor value of 6% for 3 years = 2.6730…..
--Present Value of Interest payment = $8500 x 2.6730… = $22,721 (B)
--Book value of Bond = A + B = 142735 + 22721 = $165,456
Date
Cash Interest
Interest expense
Discount amortisation
Book Value of Bond
(A=$170000 x 5%)
(B= D x 6%)
(C= B – C)
(D= D + C)
01-Jan
$ 1,65,456See Working
31-Dec
$ 8,500
$ 9,927
$ 1,427
$ 1,66,883
31-Dec
$ 8,500
$ 10,013
$ 1,513
$ 1,68,396
31-Dec
$ 8,500
$ 10,104
$ 1,604
$ 1,70,000
Dec-31
Year 1
Year 2
Interest expense
$ 9,927
$ 10,013
Bond Liability
$ 1,66,883
$ 1,68,396
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