PA10-6 (Supplement 10A) Recording Bond Issue, Interest Payments (Straight-Line A
ID: 2570437 • Letter: P
Question
PA10-6 (Supplement 10A) Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Bond Retirement [LO 10-S1] On January 1, 2015, Loop Raceway issued 610 bonds, each with a face value of S1,000, a stated interest rate of 6% paid annually on December 31, and a maturity date of December 31, 2017. On the issue date the market interest rate was 7 percent, so the total proceeds from the bond issue were S593,992. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required: 1. Prepare a bond amortization schedule. Changes During the Period Ending Bond Liability Balances Discount Carrying on Bonds Value Period Cash Discount Interest Bonds Payable Payable EndedPaidAmortized Expense P 01/01/15 12/31/15 12/31/16 12/31/17Explanation / Answer
Solution:
Issue Price of the bonds = $593,992
Par Value = 610 bonds x $1,000 = $610,000
Discount on Bonds Payable = 610,000 – 593,992 = $16,008
Annual Amortization of Discount (straight line method) = 16,008 / 3 = $5,336
Annual Cash Interest Payment = Par Value x Stated Interest Rate = 610,000*6% = $36,600
Changes during the period
Ending Bond Liability Balances
Period Ended
Cash Paid
Discount Amortized
Interest Expense
Bonds Payable
Discount on Bonds Payable
Carrying Value
(a)
(b)
(a+b)
(d)
(e)
(d-e)
1/1/2015
$610,000
$16,008
$593,992
12/31/2015
$36,600
$5,336
$41,936
$610,000
$10,672
$599,328
12/31/2016
$36,600
$5,336
$41,936
$610,000
$5,336
$604,664
12/31/2017
$36,600
$5,336
$41,936
$610,000
$0
$610,000
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Changes during the period
Ending Bond Liability Balances
Period Ended
Cash Paid
Discount Amortized
Interest Expense
Bonds Payable
Discount on Bonds Payable
Carrying Value
(a)
(b)
(a+b)
(d)
(e)
(d-e)
1/1/2015
$610,000
$16,008
$593,992
12/31/2015
$36,600
$5,336
$41,936
$610,000
$10,672
$599,328
12/31/2016
$36,600
$5,336
$41,936
$610,000
$5,336
$604,664
12/31/2017
$36,600
$5,336
$41,936
$610,000
$0
$610,000
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