Question
In: Accounting
On January 1, Year 1, Hart Company issued bonds with a face value of $128,000, a...
On January 1, Year 1, Hart Company issued bonds with a face
value of $128,000, a stated rate of interest of 12 percent, and a
five-year term to maturity. Interest is payable in cash on December
31 of each year. The effective rate of interest was 11 percent at
the time the bonds were issued. The bonds sold for $132,731. Hart
used the effective interest rate method to amortize the bond
premium. (Round your intermediate calculations and final
answers to the nearest whole number.)
Required
a. Prepare an amortization table.
|
b. What is the carrying value that would appear on
the Year 4 balance sheet?
c. What is the interest expense that would appear
on the Year 4 income statement?
d. What is the amount of cash outflow for interest
that would appear in the operating activities section of the Year 4
statement of cash flows?
|
Solutions
Expert Solution
| a. | |||||
| Date | Cash Payment | Interest Expense | Premium Amortization | Carrying Value | |
| January 1, Year 1 | 132,731 | ||||
| December 31, Year 1 | 15,360 | 14,600 | 760 | 131,971 | |
| December 31, Year 2 | 15,360 | 14,517 | 843 | 131,128 | |
| December 31, Year 3 | 15,360 | 14,424 | 936 | 130,192 | |
| December 31, Year 4 | 15,360 | 14,321 | 1,039 | 129,153 | |
| December 31, Year 5 | 15,360 | 14,207 | 1,153 | 128,000 | |
| Totals | 76,800 | 72,069 | 4,731 | ||
| Interest Expense = Preceding carrying value x 11% | |||||
| Premium Amortization = Cash Payment - Interest Expense | |||||
| b. | 129,153 | ||||
| c. | 14,321 | ||||
| d. | 15,360 | ||||
ekkarill92 answered 1 year agoRelated Solutions
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REQUIRED:
Complete the amortization schedule below:
Cash Payment
Interest Expense
Amortization
Carrying Value
1/1/Year 1
12/31/Year 1...
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