Question

On January 1, 2020, Kingbird Inc. issued $350,000 of 6-year, 3% bonds to yield a market interest rate of 4%. Interest is paid every quarter on January 1, April 1, July 1, and October 1. Kingbird has a calendar year end. After recording the December 31, 2021 accrual for quarterly interest, and making the payment on January 1, 2022, all the bonds were redeemed at 101.

Prepare a bond amortization schedule for the first two years (8 interest periods)

Answer 1

Hi,

I have prepared the bond amortization schedule by using the effective interest amortization method. This method  interest expenses over the life of bond.

				Answer
	Preparation of Bond amortization Schedule for the first 2 years
	Date	Interest	Interest	Amortization	Credit	Repayment
		Payment	Expense	of Bond	Balance in	of Bond
		0.75% of	Mkt 1% of	Discount	the Account	Amount
		Face Value	Bond Value		Payable
		(a)	(b)	(c)	(d)
				(b) - (a)
		$	$	$	$
	January 1,2020	0	0	0	350,000	0
	January 1,2020	2,625	3,500	875	350,000	0
	April 1,2020	2,625	3,500	875	350,000	0
	July 1,2020	2,625	3,500	875	350,000	0
	October 1,2020	2,625	3,500	875	350,000	0
	January 1,2021	2,625	3,500	875	350,000	0
	April 1,2021	2,625	3,500	875	350,000	0
	July 1,2021	2,625	3,500	875	350,000	0
	October 1,2021	2,625	3,500	875	350,000	0
	January 1,2022	0	0	0	0	353,500
	Working Note:-
1)	It is assumed that interest is paid at the beginning of the quarter i.e. from the date of
	issue of Bond.
2)	Redemption of Bond at Premium.
	=	Bond Value	x Redemption amount
		Face Value
	=	350,000	x 101
		100
	=	353,500
3)	Interest rate per quarter
	Interest on Bond =	3%	per annum
	Quarterly Interest =	3%	=	0.75%	per quarter
			4
4)	Market rate per quarter
	Market rate of Interest =	4%	per annum
	Quarterly Interest =	4%	=	1.00%	per quarter
			4