Question

In: Accounting

1. R Company purchased $100,000 of 8% bonds on Jan 1, 2016 at a discount. They...

1. R Company purchased $100,000 of 8% bonds on Jan 1, 2016
at a discount. They paid $92,278. The bonds mature Jan 1,
2021 and yield a 10% rate. The intent of management is to hold
the bonds until maturity. Assuming that interest is payable July 1
and Jan 1 create an effective interest amortization table.

What is the amount of interest recognized in the period ended
1/1/17?

Solutions

Expert Solution

Amortization table

Period

Cash payment

Interest expense

Discount on Bonds payable

Carrying Value of Bond

$    7,722

$               92,278

Year 1

July 1 2016

$ 4,000

$   4,614

$        614

$               92,892

Jan 1 2017

$ 4,000

$   4,645

$        645

$               93,536

Year 2

July 1 2017

$ 4,000

$   4,677

$        677

$               94,213

Jan 1 2018

$ 4,000

$   4,711

$        711

$               94,924

Year 3

July 1 2018

$ 4,000

$   4,746

$        746

$               95,670

Jan 1 2019

$ 4,000

$   4,784

$        784

$               96,454

Year 4

July 1 2019

$ 4,000

$   4,823

$        823

$               97,276

Jan 1 2020

$ 4,000

$   4,864

$        864

$               98,140

Year 5

July 1 2020

$ 4,000

$   4,907

$        907

$               99,047

Jan 1 2021

$ 4,000

$   4,952

$        952

$             100,000

Interest to be recognized on January 1 2017 =$ 4645

Leave a comment in case of any query. I have rounded off calculations to whole number. If you need answer in 2 decimal places see the given below table.

Amortization table

Period

Cash payment

Interest expense

Premium on Bonds payable

Carrying Value of Bond

$   7,722.00

$   92,278.00

Year 1

July 1 2016

$ 4,000.00

$ 4,613.90

$      613.90

$   92,891.90

Jan 1 2017

$ 4,000.00

$ 4,644.60

$      644.60

$   93,536.50

Year 2

July 1 2017

$ 4,000.00

$ 4,676.82

$      676.82

$   94,213.32

Jan 1 2018

$ 4,000.00

$ 4,710.67

$      710.67

$   94,923.99

Year 3

July 1 2018

$ 4,000.00

$ 4,746.20

$      746.20

$   95,670.19

Jan 1 2019

$ 4,000.00

$ 4,783.51

$      783.51

$   96,453.69

Year 4

July 1 2019

$ 4,000.00

$ 4,822.68

$      822.68

$   97,276.38

Jan 1 2020

$ 4,000.00

$ 4,863.82

$      863.82

$   98,140.20

Year 5

July 1 2020

$ 4,000.00

$ 4,907.01

$      907.01

$   99,047.21

Jan 1 2021

$ 4,000.00

$ 4,952.36

$      952.36

$   99,999.57

Ending Book value of bond on jan 1 2017 is $99,999.57 due to round off .

ekkarill92 answered 2 years ago
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