Preparing a Bond Amortization Table (Straight Line)
Sonoma Company, issued 5-year, 8.6% bonds with a total face value of S750,000 on January 1,
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.
Requirement 1:
To prepare:
The bond amortization table using the straight line method.
The bond amortization table using the straight line method is explained as follows:
Sonoma Company | ||||||
Amortization Table | ||||||
Straight line method | ||||||
Date | Cash Payment (Credit) | Interest Expense (Debit) | Discount on Bonds Payable (Credit) | Discount on Bonds Payable Balance | Carrying Value | |
A=750000*8.6%/2 | B=A+C | C = 38550/10 | D = D-C | F = 750000+D | ||
Jan. 1, 2020 | $ - | $ - | $ - | $ 38,550 | $ 788,550 | |
June. 30, 2020 | $ 32,250 | $ 36,105 | $ 3,855 | $ 34,695 | $ 784,695 | |
Dec. 31, 2020 | $ 32,250 | $ 36,105 | $ 3,855 | $ 30,840 | $ 780,840 | |
June... |
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.
Requirement 2:
To prepare:
The journal entries for interest as on June 30, 2020 and Dec. 31, 2020.
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