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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cornerstone Exercise 9-27 Debt Issued at a Discount (Straight Line)

Refer to the information for Drew Company above.

Required:

Prepare the amortization table for Drew Company’s bonds. (Note: Round to the nearest dollar.)

Use the following information for Cornerstone Exercises 9-29 and 9-30:

On January 1, 2020, Ironman Steel issued $1,300,000, 8-year bonds for $1,340,000. The stated rate of interest was 7% and interest is paid annually on December 31.

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

To prepare:

The Amortization table for Bonds.

Explanation

The Amortization table for Bonds is explained as follows:

Drew Company
Amortization Table
Straight line method
Date Bonds Par value Interest Payment Premium amortized Unamortized Premium Interest Expense Bonds Carrying Value
A B = A*7% C = 40000/8 D = D-C E = B-C F = A+D
Jan. 1, 2020 1,300,000 - - 40,000 - 1,340,000
Dec. 31, 2020 1,300,000 91,000 5,000 35,000 86,000 1,335,000
Dec. 31, 2021 1,300,000 91,000 5,000 30,000 86,000 1,330,000
Dec...

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