Question

On January 1, 2018, Splash City issues $470,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.

Assuming the market interest rate on the issue date is 10%, the bonds will issue at $429,678.

Complete the first three rows of an amortization table.

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

Answer 1

discount on issue of bonds = Face value - issue price

= 470000 - 429678

=40322$

Amotization schedule

Date (ddmmyyyy)	int on bonds               (market rate) (10%*(bookvalue of bonds)* 6/12)	Interest on bonds (cuponrate) (100000*6%* 6/12)	Amortization of bonds Discount	Carrying value of bonds
	A	B	C      (A-B)	E
	(interest expense)	(Cash paid )	crebit (Discount on bonds)
1/1/2018				429678
30/6/2018	21484	21150	334	430012
31/12/2018	21501	21150	351	430363

Cash paid = face vule * cupon rate * 6/12

on 6/30/2018 = 470000 * 9% * 6/12

= 21150 $

on 12/31/2018 ( it remains same )

= 21150$

interest expense

on 6/30/2018

= Carrying value of bonds * market rate * 6/12

= 429678 * 10% * 6/12

= 21483.9

= 21484

amortization amount = interest expense .- cash paid

= 21484-21150

=334 $

carrying value of bonds on 6/30/2018 = 429678 +334

= 430012 $

on 12/31/2018

= Carrying value of bonds * market rate * 6/12

= 430012 * 10% * 6/12

= 21500.6

= 21501

amortization amount = interest expense .- cash paid

= 21501-21150

=351 $

carrying value of bonds on 12/31/2018 = 430012 + 351

= 430363 $