### Bond Amortization using the Effective Interest Rate Method**Scenario:**On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30 and December 31 to yield 6%. The bonds were issued for $1,851,234.**Tasks:**a. Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method. Round answers to the nearest dollar. Enter all amounts as positive numbers.b. Show how this bond would be reported on the balance sheet at December 31, Year 2.#### a. Amortization Table**The Effective Interest Rate Method**| Date | Interest Paid | Interest Expense | Amortization | Bond Carrying Amount ||----------------|---------------|------------------|--------------|----------------------|| 1/1/Year 1 | $ | $ | $ | $ || 6/30/Year 1 | $ | $ | $ | $ || 12/31/Year 1 | $ | $ | $ | $ || 6/30/Year 2 | $ | $ | $ | $ || 12/31/Year 2 | $ | $ | $ | $ |#### b. Partial Balance Sheet**Kennard Co.****Partial Balance Sheet**| | | | ||----------------|--------------|-------------------|-----------------|| Long-term Liabilities | Bonds Payable | Less: Discount on Bonds Payable | $ || | | | || Net Bond Carrying Amount | $ | | |Make sure to fill in the blank fields with the calculated amounts from the amortization schedule. The amortization table helps in recording how the bond's book value changes over time due to interest expense and the amortization of any discount or premium.Essentially, this method involves the calculation of interest expense by applying the market (effective) interest rate at issuance to the carrying amount of the bond (book value) at the beginning of each period. The bond premium or discount is then amortized as the difference between the interest expense and the interest paid. This subsequently adjusts the carrying amount of the bond.**Note:

The bonds are issued at discount when market rate is higher than the coupon rate of bonds payable.

On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30 and December 31 to yield 6%. The bonds were issued for $1,851,234. a. Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method. Round answers to the nearest dollar. Enter all amounts as positive numbers. Amortization Table The Effective Interest Rate Method Interest Paid Interest Expense Amortization Bond Carrying Amount Date 1/1/Year 1 6/30/Year 1 12/31/Year 1 6/30/Year 2 12/31/Year 2 b. Show how this bond would be reported on the balance sheet at December 31, Year 2. Kennard Co. Partial Balance Sheet

On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30 and December 31 to yield 6%. The bonds were issued for $1,851,234. a. Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method. Round answers to the nearest dollar. Enter all amounts as positive numbers. Amortization Table The Effective Interest Rate Method Interest Paid Interest Expense Amortization Bond Carrying Amount Date 1/1/Year 1 6/30/Year 1 12/31/Year 1 6/30/Year 2 12/31/Year 2 b. Show how this bond would be reported on the balance sheet at December 31, Year 2. Kennard Co. Partial Balance Sheet

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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