Exercise 10-19B Effective interest amortization of a bond discount
On January 1, Year 1, Seaside Condo Association issued bonds with a face value of $250,000, a stated rate of interest of 8 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 10 percent at the time the bonds were issued. The bonds sold for $219,277. Seaside 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 10-20B Effective interest amortization of a bond discount
On January 1, Year 1, Valley Enterprises issued bonds with a face value of $60,000, 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 $57,666. Valley 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 | 57,666 | |||
| December 31, Year 1 | 4,800 | 5,190 | 390 | 58,056 |
| December 31, Year 2 | ? | ? | ? | ? |
| December 31, Year 3 | ? | ? | ? | ? |
| December 31, Year 4 | ? | ? | ? | ? |
| December 31, Year 5 | ? | ? | ? | ? |
| Totals | 24,000 | 26,334 | 2,334 |
b. What item(s) in the table would appear on the Year 2 balance sheet?
c. What item(s) in the table would appear on the Year 2 income statement?
d. What item(s) in the table would appear on the Year 2 statement of cash flows?
Exercise 10-21B Effective interest amortization of a bond premium
On January 1, Year 1, Omega Company issued bonds with a face value of $200,000, 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 5 percent at the time the bonds were issued. The bonds sold for $215,443. Omega used the effective interest rate method to amortize the bond discount.
Required
a. Determine the amount of the premium 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.
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