Exercise 10-18A Straight-line amortization for bonds issued at a premium
On January 1, Year 1, Sayers Company issued $280,000 of five-year, 6 percent bonds at 102. Interest is payable semiannually on June 30 and December 31. The premium is amortized using the straight-line method.
Required
Prepare the journal entries to record the bond transactions for Year 1 and Year 2.
Exercise 10-19A Effective interest amortization of a bond discount
On January 1, Year 1, the Diamond Association issued bonds with a face value of $300,000, a stated rate of interest of 6 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7 percent at the time the bonds were issued. The bonds sold for $278,932. Diamond used the effective interest rate method to amortize the bond discount.
Required
a. Determine the amount of the discount on the day of issue.
b. Determine the amount of interest expense recognized on December 31, Year 1.
c. Determine the carrying value of the bond liability on December 31, Year 1.
d. Provide the general journal entry necessary to record the December 31, Year 1, interest expense.
Exercise 10-20A Effective interest amortization of a bond discount
On January 1, Year 1, Parker Company issued bonds with a face value of $80,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 9 percent at the time the bonds were issued. The bonds sold for $76,888. Parker used the effective interest rate method to amortize the bond discount.
Required
a. Prepare an amortization table as shown next:
| Date | Cash Payment | Interest Expense | Discount Amortization | Carrying Value |
|---|---|---|---|---|
| January 1, Year 1 | 76,888 | NA | NA | 76,888 |
| December 31, Year 1 | 6,400 | 6,920 | 520 | 77,408 |
| December 31, Year 2 | ? | ? | ? | ? |
| December 31, Year 3 | ? | ? | ? | ? |
| December 31, Year 4 | ? | ? | ? | ? |
| December 31, Year 5 | ? | ? | ? | ? |
| Totals | 32,000 | 35,112 | 3,112 |
b. What item(s) in the table would appear on the Year 4 balance sheet?
c. What item(s) in the table would appear on the Year 4 income statement?
d. What item(s) in the table would appear on the Year 4 statement of cash flows?
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