repare an amortization schedule for the 1st 5 years (effective method) using the following data: On January 1, 2010, ABC Co. issued $2,000,000, 5%, 10 year bonds, interest payable on June 30th and December 31st to yield 6%. Use the following format and round to nearest dollar (may have small rounding error). The bonds were issued for $1,851,234.
- Prepare an amortization schedule for the 1st 5 years (effective method) using the following data:
On January 1, 2010, ABC Co. issued $2,000,000, 5%, 10 year bonds, interest payable on June 30th and December 31st to yield 6%. Use the following format and round to nearest dollar (may have small rounding error). The bonds were issued for $1,851,234.
Date Cash paid Interest expense Amortization Bond carry Value
Answer :
Face value of bonds = $2,000,000
Issue price of bonds = $1,851,234
Issue price is less than face value of bonds, that mean bonds are issued at discount .
Total discount on issue of bonds is = $2,000,000 - $1,851,234 = $148,766
Cash paid = $2,000,000*5%*6/12 = $50,000
Interest expenses =Recorded amount as Interest expenses is carrying value of bonds * market rate of interest * 6/12
= $1,851,234 * 6%*6/12
=$55,537
Amortization = Interest - cash paid
= $55,537 - $50,000 = $5,537
Bond carrying value = Opening carrying value + Discount amortized
= $1,851,234 + $5,537 = $1,856,771
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