Question

# Bonita Company sells 9% bonds having a maturity value of \$2,290,000 for \$2,042,360. The bonds are...

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

Year

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

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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