pare a schedule of interest expense and bond amortization for 2020–2022.
On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis.
Prepare a schedule of interest expense and bond amortization for 2020–2022.
Amortization of bonds refers to the process in which the carrying value of the bond is adjusted with every interest payment due to difference in coupon and market rate of interest. The premium on bond payable and discount on bond payable is amortized based upon life and coupon and market interest rate. Ineffective interest method interest expense is booked based on the market interest rate on carrying value and remaining amount is adjusted with carrying value and in straight-line method equal amount in amortized over the life of the bond. So both the methods can be adopted for bond amortization.
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