Question

Wildhorse Co. sells $467,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%.

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end.

Answer 1

Bond Amortization schedule
Effective interest method
Date	Cash paid	Interest expense (Carrying value * 6%)	Bond Discount	Carrying value of Bonds
Sept 1 2017				440,930
March 1 2018	23,350	26,456	3,106	444,036
Sept 1 2018	23,350	26,642	3,292	447,328
March 1 2019	23,350	26,840	3,490	450,818
Sept 1 2019	23,350	27,049	3,699	454,517
March 1 2020	23,350	27,271	3,921	458,438
Sept 1 2020	23,350	27,506	4,156	462,594
Sept 1 2020	23,350	27,756	4,406	467,000
Calculation of carrying value of Bonds on March 1,2017:-
Date	Cash flow (467,000*5%)	PV @ 6%	Present value
Sept 1 2017	23,350	0.943	22,028
March 1 2018	23,350	0.890	20,781
Sept 1 2018	23,350	0.840	19,605
March 1 2019	23,350	0.792	18,495
Sept 1 2019	23,350	0.747	17,448
March 1 2020	23,350	0.705	16,461
Sept 1 2020	23,350	0.665	15,529
Sept 1 2020	467,000	0.665	310,582
	Carrying value of Bond		440,930