On January 1, 2016 Nick issued a $100,000 bond that matures in 20 years and pays
ID: 2607489 • Letter: O
Question
On January 1, 2016 Nick issued a $100,000 bond that matures in 20 years and pays 4% interest (stated or coupon rate) a year. (Payment date is December 31.) The market (yield) rate is 6%.assume the bond was sold @ 95.
Complete the first two years of the following table:
Year
Interest Expense
Book
1/1/16
1
2
4. Complete the entries at the end of the year for the first two years. Please use the table above.
Date
Accounts
Debit(s)
Credit(s)
12/31/16
Date
Accounts
Debit(s)
Credit(s)
12/31/17
Year
Interest Expense
Book
1/1/16
1
2
Explanation / Answer
Answer 1
Year
(A)
Interest Expense($)
B = 6 % * previous row balance of cell "D"
Interest actually paid ($)
C = $100,000 * 4 %
Discount Amortise
D = B- C
Net Book Value($)
D = previous balance + D
Answer 4
Journal Entries
Note : As Nothing is mentioned in the question , we had applied effective interest method for amortisation of discount.
Year
(A)
Interest Expense($)
B = 6 % * previous row balance of cell "D"
Interest actually paid ($)
C = $100,000 * 4 %
Discount Amortise
D = B- C
Net Book Value($)
D = previous balance + D
01/01/16 Nil Nil Nil 95,000 ($100,000 * 95 %) 31 / 01 /16 5,700 4,000 1,700 96,700 31/01/17 5,802 4,000 1,802 98,502Related Questions
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