Exercise Straight-line amortization of a bond premium High Company issued $100,000 face value of bonds on January 1, 2011. The bonds had a 5 percent stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31, 2011. The bonds were issued at 102. Required a. Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2011 bond issue and (2) the December 31, 2011 recognition of interest expense, including the amortization of the premium and the cash payment, affects the company's financial statements. Use + for increase, - for decrease, and NA for not affected. Event No. Assets = Liab. + Equity Rev. 1 Exp. = Net Inc. Cash Flow b. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2011. c. Determine the amount of interest expense reported on the 2011 income statement. d. Determine the carrying value of the bond liability as of December 31, 2012. e. Determine the amount of interest expense reported on the 2012 income statement.
Exercise Straight-line amortization of a bond premium High Company issued $100,000 face value of bonds on January 1, 2011. The bonds had a 5 percent stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31, 2011. The bonds were issued at 102. Required a. Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2011 bond issue and (2) the December 31, 2011 recognition of interest expense, including the amortization of the premium and the cash payment, affects the company's financial statements. Use + for increase, - for decrease, and NA for not affected. Event No. Assets = Liab. + Equity Rev. 1 Exp. = Net Inc. Cash Flow b. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2011. c. Determine the amount of interest expense reported on the 2011 income statement. d. Determine the carrying value of the bond liability as of December 31, 2012. e. Determine the amount of interest expense reported on the 2012 income statement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 10-17A Straight-line amortization of a bond premium
High Company issued $100,000 face value of bonds on January 1, 2011. The bonds had a 5 percent
stated rate of interest and a 10-year term. Interest is paid in cash annually, beginning December 31,
2011. The bonds were issued at 102.
Required
a. Use a financial statements model like the one shown below to demonstrate how (1) the January 1,
2011 bond issue and (2) the December 31, 2011 recognition of interest expense, including the
amortization of the premium and the cash payment, affects the company's financial statements.
Use + for increase, - for decrease, and NA for not affected.
Event
No. Assets = Liab. + Equity Rev.
1
-
Exp. = Net Inc. Cash Flow
b. Determine the carrying value (face value less discount or plus premium) of the bond liability
as of December 31, 2011.
c. Determine the amount of interest expense reported on the 2011 income statement.
d. Determine the carrying value of the bond liability as of December 31, 2012.
e. Determine the amount of interest expense reported on the 2012 income statement.
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