Chapter 17, Problem 5E

To determine

Amortization: Amortization means reducing the balance in the account. Discount on Bonds Payable will be “0” over the life of the bond. When bond rate is lower than the yield rate bond is issued at a discount to the par value.

Straight-line method: This method is mostly used for the intangible assets. In this method interest is allocated equally over the life of bond.

Effective interest method: In the effective interest method decrease in bond value decreases the interest expense. When bond rate is lower than the yield rate bond is issued at a discount to the par value.

(a) To determine: To determine the straight-line method and prepare a schedule for interest and discount amortization for 3 years.

Given information: All the information related to P Company is provided in the question document.

To determine

(b) To determine: To determine the effective-interest method and prepare a schedule of interest revenue and discount amortization.

Given information: All the information related to P Company is provided in the question document.

To determine

(c) To prepare: To prepare the receipt of interest and discount amortization using straight-line method.

Given information: All the information related to P Company is provided in the question document.

To determine

(d) To prepare: To prepare the receipt of interest and discount amortization using effective-interest method.

Given information: All the information related to P Company is provided in the question document.