Question

On January 1, 2018, Splash City issues $360,000 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 6%, the bonds will issue at $386,781.

Required:

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

	Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value 1/1/18 6/30/18 12/31/18

Answer 1

Face Value of Bonds	360,000.00
Money received on issue	386,781.00
Premium on issue of Bonds	26,781.00
Date	Interest Payment = Stated Value *7%/2 = A	Interest Exp= Prev BV*6%/2 = B	Amortisation of Bond Premium = B-A	CR bal in Bond Prem C	Cr Bal in Bond Payable D	Book Value of Bonds = D-C
1/1/18				26,781.00	360,000.00	386,781.00
6/30/18	12,600.00	11,603.43	(996.57)	25,784.43	360,000.00	385,784.43
12/31/18	12,600.00	11,573.53	(1,026.47)	24,757.96	360,000.00	384,757.96
Date	Cash Paid	Interest Expense	Decrease in Carrying Value	Carrying Value
1/1/2018	386,781.00		-	386,781.00
6/30/2018	12,600.00	11,603.43	(996.57)	385,784.43
12/31/2018	12,600.00	11,573.53	(1,026.47)	384,757.96