**Bond Amortization Example**Oak Branch Inc. issued $820,000 of 6%, 10-year bonds when the market rate was 5%. They received $883,930, with interest paid semi-annually. The task is to prepare an amortization table for the first three years, rounding intermediate and final answers to whole dollars.**Amortization Table for Bonds**| Date | Cash Interest Payment | Interest on Carrying Value | Amortization of Premium | Carrying Value ||----------------|-----------------------|----------------------------|------------------------|----------------|| Jan. 1, Year 1 | | | | || June 30, Year 1| | | | || Dec. 31, Year 1| | | | || June 30, Year 2| | | | || Dec. 31, Year 2| | | | || June 30, Year 3| | | | || Dec. 31, Year 3| | | | |**Graph/Diagram Explanation:**- The table above is intended to track the amortization of a bond over a specified period.- Columns include the date of each interest payment, the cash interest payment amount, interest calculated on the carrying value of the bond, any amortization of the bond premium, and the resulting carrying value of the bond after each entry.- The x-mark in the "Cash Interest Payment" for Dec. 31, Year 1 indicates missing data that requires calculation.This table allows learners to understand how bond amortization is calculated and how it affects the carrying value of bonds over time.

Here in this question, we are required to prepare amortization table for the first three years. When face value of bond is less than the issue price then it is bond is called as issued at premium. When there is discount or premium on issue of bond then we need to amortized it over a bond period. There are two methods for amortizing premium/discount on bond which are, (1) Straight line amortization method (2) Effective interest rate method. We will need to understand effective interest rate here. In effective interest rate method, premium/discount amortized by using effective interest rate against the rate at which interest is paid.Now lets calculate the requirement. Cash interest payment Interest on carrying value Amortization premium Carrying value Jan 1, Year 1 883,930 June 30, Year 1 24,600 22,098 2,502 881,428 Dec 31, Year 1 24,600 22,036 2,564 878,864 June 30, Year 2 24,600 21,972 2,628 876,236 Dec 31, Year 2 24,600 21,906 2,694 873,542 June 30, Year 3 24,600 21,839 2,761 870,781 Dec 31, Year 3 24,600 21,769 2,831 867,950 Cash interest payment = $820,000 * 6% * (6 Months/12 Months) = $24,600 per period Amortization discount = Cash interest payment - Interest on carrying value Interest on carrying value = Ending carrying value in previous installment * 5% * (6 Months / 12 Months)

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Oak Branch Inc. issued $820,000 of 6%, 10-year bonds when the market rate was 5%. They received $883,930. Interest was paid semi-annually. Prepare an amortization table for the first three years of the bonds. Round intermediate and final answers to whole dollar amount. Cash Interest Interest on Amortization of Payment Carrying Value Premium Carrying Value Jan. 1, Year 1 June 30, Year 1 Dec. 31, Year 1 June 30, Year 2 Dec. 31, Year 2 June 30, Year 3 Dec. 31, Year 3

Oak Branch Inc. issued $820,000 of 6%, 10-year bonds when the market rate was 5%. They received $883,930. Interest was paid semi-annually. Prepare an amortization table for the first three years of the bonds. Round intermediate and final answers to whole dollar amount. Cash Interest Interest on Amortization of Payment Carrying Value Premium Carrying Value Jan. 1, Year 1 June 30, Year 1 Dec. 31, Year 1 June 30, Year 2 Dec. 31, Year 2 June 30, Year 3 Dec. 31, Year 3

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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