Amortization of Premium or Discount Bonds payable are dated January 1, 2014, and

Question

Amortization of Premium or Discount Bonds payable are dated January 1, 2014, and are issued on that date. The face value of the bonds is $125,000, and the face rate of interest is 8%. The bonds pay interest semiannually. The bonds will mature in five years. The market rate of interest at the time of issuance was 6%.

Required:

Note: When computing the issue price of the bonds, round your answer to the nearest dollar. Then use the rounded amount in subsequent computations.

1. Using the effective interest amortization method, what amount should be amortized for the first six-month period? What amount of interest expense should be reported for the first six-month period? Round your answers to the nearest cent. Amount amortized $ Amount of interest expense $

2. Using the effective interest amortization method, what amount should be amortized for the period from July 1 to December 31, 2014? What amount of interest expense should be reported for the period from July 1 to December 31, 2014? Round your answers to the nearest cent.

Amount amortized $ Amount of interest expense $

Explanation / Answer

Amortisation Schedule for 1 year

Interest

Payment

Interest

Expense

3% x Previous

Book Balance

Amortisation

of Bond Preimum

Credit bal.

in bond discount

Credit Balance

in accounts payable

Book Value

of the bonds

1. Amount amortized for the first six month period = $919

Amount of Interest for the first six month period = $5000

2. Amount amortized for the next six month period = $1553

Amount of Interest for the next six month period = $5000

Date

Interest

Payment

Interest

Expense

3% x Previous

Book Balance

Amortisation

of Bond Preimum

Credit bal.

in bond discount

Credit Balance

in accounts payable

Book Value

of the bonds

Jan 1, 2014 11025 125000 136025 June 30, 2014 5000 4081 919 10106 125000 114894 Dec 31, 2014 5000 3447 1553 8553 125000 116447

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.