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
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

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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