e 1019AElfective interest amortization of a bond discount Accounting for Long-T

Question

e 1019AElfective interest amortization of a bond discount Accounting for Long-T 2016, the Diamond Association issued bonds with a face value of $300,000, a interest of 6 percent, and a 10-year term to maturity. Interest is payable in cash on On January On a rate o stated rate of stated ter 31 of each year. The effective rate of interest was 7 percent at the time the bonds were Deceni the bonds sold for $278,932. Diamond used the effective interest rate method to amor- tize the bond discount, Required termine the amount of the discount on the day of issue termine the amount of interest expense recognized on December 31, 2016. ermine the carrying value of the bond liability on December 31,2016. Det l. ridethe general journal entry necesary to record the December 31, 201, ncerest d. expense.

Explanation / Answer

a Amount of discount on the day of issue will be: (278932-278932) 0 {300000 P.V.F(7%,10) + 18000 P.V.A.F(7%,10)} = 300000*0.508 + 18000*7.03 278932 b Amount of interest expense to be recognised on 31st december 2016 will be (300000*6%) = 18000 c Carrying value of bond on 31st december 2016 will be : 280470 {300000 P.V.F(7%,9) + 18000 P.V.A.F(7%,9)} = 300000*0.544 + 18000*6.515 d Interest on bond 18000 To Cash 18000

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