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In: Accounting

Cease Corporation issued a bond on January 1, 2018 with a face value of $1,000. The...

Cease Corporation issued a bond on January 1, 2018 with a face value of $1,000. The bond's coupon rate is 6 percent and interest is paid annually on December 31. The bond matures in three years. The market interest rate was 8 percent at the time the bond was sold. The amortization schedule of the bond issued is shown below: Cash Interest Payment Interest Expense Amortization Book Value of bonds January 1, 2018 $948 December 31, 2018 $60 $76 $16 964 December 31, 2019 60 77 17 981 December 31, 2020 60 79 19 1,000 Required:

1. What was the bond's issue price?

2. Did the bond sell at a discount or a premium? How much was the premium or discount?

3. What amount(s) should be shown on the balance sheet for bonds payable at the year-end of 2018 and 2019?

4. Show how the following amounts: (a) $60, (b) $77, (c) $17, and (d) $981 were computed for 2019 in the amortization schedule.

Solutions

Expert Solution

Solution:

1) Bond's issue price = $ 948

2) Bond sell at Discount and Discount is $ 52 [ $1000 - $ 948]

3) Amount(s) should be shown on the balance sheet for bonds payable at the year-end

2018 = $ 964

2019 = $ 981

4) Following amounts: (a) $60, (b) $77, (c) $17, and (d) $981 Computation:

A) Cash Interest Payment = $1000 *6% = $ 60

B) Interest Expense = Book Value on Dec. 31, 2018 * Market Rate = $ 964 * 8% = $ 77

C) Amortization = Interest Expense - Cash Interest Payment = $77-$60 =$17

D) Book Value of bonds = $ 964 + $ 17 = $ 981

Amortization Table
Date Cash Interest Payment Interest Expense Amortization Book Value of bonds
January. 1, 2018 $                                            948
December. 31, 2018 $                                      60 $                          76 $                                 16 $                                            964
December. 31, 2019 $                                      60 $                          77 $                                 17 $                                            981
December. 31, 2020 $                                      60 $                          78 $                                 19 $                                        1,000

ekkarill92 answered 2 years ago
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