Question

Question 9:

On January 1, 2018, Splash City issues $450,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.
Assuming the market interest rate on the issue date is 8%, the bonds will issue at $419,423.

Required:     
1. Complete the first three rows of an amortization table.

Date	Cash paid	interest expense	increase in carrying value	carrying value
1/1/18
6/30/18
12/31/18

Answer 1

Worknig Notes:
	Calculation of Discount amount and half yearly coupon rate
		Par Value of the Bonds =	$                       4,50,000
		Issued price	$                       4,19,423
		Discount to be amortized	$                           30,577
		Rate of interest of Coupon	7%
		Yearly Coupon Amount	$                           31,500
		Half yearly coupon amount =	$                           15,750
		Market Rate of interest =	8%
		Half yearly interest rate = 8% / 2 =	4.00%
SOLUTION
	Schedule of Interest revenue and bond premium Amortization
	Effective interest Method
	Date	Cash Paid	Interest Expenses @ 4.00% on Carrying Amount	Increase in Carrying Value	Caryying Amount
	01/01/2018				$   4,19,423.00
	06/30/2018	$                                                                    15,750	$                     16,776.92	$             1,026.92	$   4,20,449.92
	12/31/2018	$                                                                    15,750	$                     16,818.00	$             1,068.00	$   4,21,517.92