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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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Exercise Completing a Debt Amortization Table (Straight Line)

Cagney Company sold $200,000 of bonds on January 1, 2020. A portion of the amortization table follows.

Chapter 9, Problem 73E, Exercise Completing a Debt Amortization Table (Straight Line) Cagney Company sold $200,000 of bonds

  1. Determine the stated interest rate on these bonds.
  2. Calculate the interest expense and the discount amortization for the interest period ending June 30, 2021,
  3. Calculate the liability balance shown on a balance sheet after the interest payment is recorded on June 30, 2021.

To determine

(a)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Stated interest rate on the issued bonds.

Explanation

Given:

Bonds of $200,000 face value and amortization table as given below:

Period Cash Payment (Credit) Interest Expense (Debit) Discount on Bonds Payable (Credit) Discount on bonds payable balance Carrying Value
At issue 8,000 192,000
06/30/20 12,000 12,800 800 7,200 192,800
12/3120 12,000 12,800 800 6,400 193,600
06/30/21 ? ? ? ? ?

When issued at discount, there exists discount amortization. Therefore, interest expense for the year will be interest payment add discount amortization for the period...

To determine

(b)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Interest Expense and discount amortization for period ending on 30th June 2021.

To determine

(c)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Liability for Balance after making interest payment for period 30th June 2021.

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