Question

On January 1, 2020, Bonita Company sold 12% bonds having a maturity value of $650,000 for $699,280, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Bonita Company allocates interest and unamortized discount or premium on the effective-interest basis.

Prepare a schedule of interest expense and bond amortization for 2020–2022. (Round answer to 0 decimal places, e.g. 38,548.)

Schedule of Interest Expense and Bond Premium Amortization Effective-Interest Method
Date		Cash Paid		Interest Expense		Premium Amortized		Carrying Amount of Bonds
1/1/20		$		$		$		$
12/31/20
12/31/21
12/31/22

Answer 1

Based on the information available in the question, we can prepare the Schedule of Interest expense and Bond Amortization for the period between 2020 - 2022 as follows :-

Date	Interest Payment ($650,000 * 12%)	Interest Expenses(Carrying Value * 10%)	Premium Amortization	Bond Carrying Amount
	A	B	C = A-B
01/01/2020				6,99,280
12/31/2020	78,000	69,928	8,072	6,91,208
12/31/2021	78,000	69,121	8,879	6,82,329
12/31/2022	78,000	68,233	9,767	6,72,562

The Carrying value of the bond is calculated by reducing the Premium amortization value from the Carrying value of the bonds period over period.