The following amortization and interest schedule reflects the issuance of 10-year bonds by Cullumber Corporation on January 1, 2014, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly. Amortization Schedule Year Cash Interest Amount Unamortized Carrying Value 1/1/2014 $28,507 $ 113,493 2014 $15,620 $17,024 27,103 114,897 2015 15,620 17,235 25,488 116,512 2016 15,620 17,477 23,631 118,369 2017 15,620 17,755 21,496 120,504 2018 15,620 18,076 19,040 122,960 2019 15,620 18,444 16,216 125,784 2020 15,620 18,868 12,968 129,032 2021 15,620 19,355 9,233 132,767 2022 15,620 19,915 4,938 137,062 2023 15,620 20,558 142,000 (a) Indicate whether the bonds were issued at a premium or a discount. select an option (b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method. select a method (c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.) The stated rate enter percentages rounded to 0 decimal places % The effective rate enter percentages rounded to 0 decimal places % (d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2014.
The following amortization and interest schedule reflects the issuance of 10-year bonds by Cullumber Corporation on January 1, 2014, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.
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Amortization Schedule
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|---|---|---|---|---|---|---|---|---|
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Year |
Cash |
Interest |
Amount
Unamortized |
Carrying
Value |
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1/1/2014
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$28,507 | $ 113,493 | ||||||
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2014
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$15,620 | $17,024 | 27,103 | 114,897 | ||||
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2015
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15,620 | 17,235 | 25,488 | 116,512 | ||||
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2016
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15,620 | 17,477 | 23,631 | 118,369 | ||||
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2017
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15,620 | 17,755 | 21,496 | 120,504 | ||||
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2018
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15,620 | 18,076 | 19,040 | 122,960 | ||||
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2019
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15,620 | 18,444 | 16,216 | 125,784 | ||||
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2020
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15,620 | 18,868 | 12,968 | 129,032 | ||||
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2021
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15,620 | 19,355 | 9,233 | 132,767 | ||||
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2022
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15,620 | 19,915 | 4,938 | 137,062 | ||||
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2023
|
15,620 | 20,558 | 142,000 |
(a) Indicate whether the bonds were issued at a premium or a discount.
select an option
(b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method.
select a method
(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.)
|
The stated rate
|
enter percentages rounded to 0 decimal places | % | |
|---|---|---|---|
|
The effective rate
|
enter percentages rounded to 0 decimal places | % |
(d) On the basis of the schedule above, prepare the
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>Bonds Payable are the source of finance for the companies. |
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>The bondholders are entitle for a fixed amount of periodic interest payments, calculated based on coupon stated rate and face value of bonds. |
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>Bonds can be issued at Premium or at discount or at face value. |
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Stated Interest rate is MORE than Market Interest Rate |
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>This means that investor will get MORE interest than he would have earned by investing in market. |
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>For this additional interest income, the issue of bonds charges certain premium. |
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>Bonds are issued at Premium, and Bond price will be 'greater than 100'. |
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Stated Interest rate is LESS than Market Interest Rate |
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>This means that investor will get MORE interest by investing in market than investing in these bonds. |
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>This will make these bonds 'unattractive' for investment purpose. |
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>In order to make these bonds as attractive offer for investment, the issuer of bonds issues these bonds at a DISCOUNT. |
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>Bonds are issued at Discount, and Bond price will be 'less than 100'. |
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