Question

Bonita Company sells 9% bonds having a maturity value of
$2,290,000 for $2,042,360. The bonds are dated January 1, 2020, and
mature January 1, 2025. Interest is payable annually on January
1.

Set up a schedule of interest expense and discount amortization
under the straight-line method.

**Schedule of Discount Amortization
Straight-Line Method**

**Cash
Paid**

**Interest
Expense**

**Discount
Amortized**

**Carrying
Amount of Bonds**

Jan. 1, 2020

Jan. 1, 2020

Jan. 1, 2021

Jan. 1, 2022

Jan. 1, 2023

Jan. 1, 2024

Answer #1

discount on issue of bonds = Face value - issue price

= 2290000 - 2042360

=247640

Amortization under straight line method

= Dicount amount / no of years for maturity of bonds

= 247640 / 5

= 49528 per year

Straight line method | |||||

YEAR | Interest on bonds (cuponrate) (2290000*9%) | interest expense ( Cash paid + Amortization ) | Amortization of bonds Discount | Carrying value of bonds | balance in bod Discounnt account |

A | B ( A+C) | C | E | D | |

1/1/2020 | (Cash paid ) | (interest expense) | Credit (discount on bonds) | 2042360 | 247640 |

1/1/2021 | 206100 | 255628 | 49528 | 2091888 | 198112 |

1/1/2022 | 206100 | 255628 | 49528 | 2141416 | 148584 |

1/1/2023 | 206100 | 255628 | 49528 | 2190944 | 99056 |

1/1/2024 | 206100 | 255628 | 49528 | 2240472 | 49528 |

1/1/2025 | 206100 | 255628 | 49528 | 2290000 | 0 |

Note

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