Question

Melon Co. issues bonds dated January 1, 2019, with a par value of $710,000. The bonds’ annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 8%, and the bonds are sold for $728,598.

1. Prepare a straight-line amortization table for these bonds.

Answer 1

Premium on bond payable = Issue price -Par value

                        = 728598 - 710000

                        = 18598

Number of semiannual period over 3 years = 3*2 =6   [2semiannual period in a year comprising of 6 months each]

Amortization of bond premium per semiannual period = 18598 /6 = 3099.67

Interest paid every semiannual period =Par value *stated rate *n/12

                                   = 710000*.09*6/12

                                  = 31950

Interest expense= Interest paid + Amortization of bond premium

           = 31950- 3099.67

          = 28850.33

Period ended	Interest paid	Interest expense	Premium amortization	unamortized premium	carrying value of bond payable
1/1/2019				18598	728598
30/6/2019	31950	28850.33	3099.67	18598-3099.67= 15498.33	710000+15498.33= 725498.33
31/12/2019	31950	28850.33	3099.67	15498.33-3099.67= 12398.66	710000+12398.66= 722398.66
30/6/2020	31950	28850.33	3099.67	12398.66-3099.67=9298.99	710000+9298.99= 719298.99
31/12/2020	31950	28850.33	3099.67	9298.99-3099.67= 6199.32	710000+6199.32=716199.32
30/6/2021	31950	28850.33	3099.67	6199.32-3099.67=3099.65	710000+3099.65=713099.65
31/12/2021	31950	28850.33	3099.67	3099.65-3099.67 =0 (difference is due to rounding of decimal places0	710000+0=710000
Total	191700	173101.98	18598.02