On January 1, Year 1, Parker Company issued bonds with a face value of $58,000, a stated rate of interest of 7 percent, and a five-year t 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 we issued. The bonds sold for $53,488. Parker used the effective interest rate method to amortize the bond discount. Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. Required a. Prepare an amortization table.
On January 1, Year 1, Parker Company issued bonds with a face value of $58,000, a stated rate of interest of 7 percent, and a five-year t 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 we issued. The bonds sold for $53,488. Parker used the effective interest rate method to amortize the bond discount. Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. Required a. Prepare an amortization table.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Exercise 10-20A (Algo) Effective interest amortization of a bond discount LO 10-6
On January 1, Year 1, Parker Company issued bonds with a face value of $58,000, a stated rate of interest of 7 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 $53,488. Parker used the effective interest rate method to amortize the bond discount.
Note: Round your intermediate calculations and final answers to the nearest whole dollar amount.
Required
a. Prepare an amortization table.
Date
January 1, Year 1
December 31, Year 1
December 31, Year 2
December 31, Year 3
December 31, Year 4
December 31, Year 5
Totals
Cash
Payment
b. Carrying value
c. Interest expense
d. Cash outflow for interest
$
Interest
Expense
4,060 $ 4,814 $
4,060
4,881
4,060
Discount
Amortization
$ 12,180 $ 9,695 $
$
4,060
754
821
1,575
b. What is the carrying value that would appear on the Year 4 balance sheet?
c. What is the interest expense that would appear on the Year 4 income statement?
d. What is the amount of cash outflow for interest that would appear in the operating activities section of the Year 4 statement of cash flows?
Carrying
Value
$ 53,488
54,242
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