On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date January 1, Year 1 End of Year I End of Year 2 End of Year 3 End of Year 4 Cash Interest Amortization Balance $48,813 48,630 48,434 $3,600 ? ? $3,417 ? 3,376 $183 ? 210 ? ? 48,000 Required: 1. Complete the amortization schedule. 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? 3. How much cash was received on the day the bonds were issued (sold)? 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount? 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? 6. What is the coupon rate? 7. What was the annual market rate of interest on the date the bonds were issued? 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3? 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date January 1, Year 1 End of Year I End of Year 2 End of Year 3 End of Year 4 Cash Interest Amortization Balance $48,813 48,630 48,434 $3,600 ? ? $3,417 ? 3,376 $183 ? 210 ? ? 48,000 Required: 1. Complete the amortization schedule. 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? 3. How much cash was received on the day the bonds were issued (sold)? 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount? 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? 6. What is the coupon rate? 7. What was the annual market rate of interest on the date the bonds were issued? 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3? 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What does completing the amortization schedule mean? What are key ways to attack this problem? What should I pay special attention to?
Transcribed Image Text:On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on
December 31. The bonds mature at the end of four years. Olive uses the effective-interest
amortization method. The partially completed amortization schedule below pertains to the bonds:
Date
January 1, Year 1
End of Year I
End of Year 2
End of Year 3
End of Year 4
Cash
$3,600
?
?
?
Interest Amortization Balance
$48,813
48,630
48,434
$3,417
?
?
3,376
$183
?
210
?
?
48.000
Required:
1. Complete the amortization schedule.
2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors?
3. How much cash was received on the day the bonds were issued (sold)?
4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or
discount?
5. How much cash will be disbursed for interest each period and in total over the life of the bonds?
6. What is the coupon rate?
7. What was the annual market rate of interest on the date the bonds were issued?
8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3?
9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
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