Question

On January 1, 2016 Nick issued a $100,000 bond that matures in 20 years and pays 4% interest (stated or coupon rate) a year. (Payment date is December 31.) The market (yield) rate is 6%.assume the bond was sold @ 95.

Complete the first two years of the following table:

                                                                                                                                 

Year	Interest Expense			Book
1/1/16
1
2

4. Complete the entries at the end of the year for the first two years. Please use the table above.

Date	Accounts	Debit(s)	Credit(s)
12/31/16

Date	Accounts	Debit(s)	Credit(s)
12/31/17

Answer 1

Answer 1

Year (A)	Interest Expense($) B = 6 % * previous row balance of cell "D"	Interest actually paid ($) C = $100,000 * 4 %	Discount Amortise D = B- C	Net Book Value($) D = previous balance + D
01/01/16	Nil	Nil	Nil	95,000 ($100,000 * 95 %)
31 / 01 /16	5,700	4,000	1,700	96,700
31/01/17	5,802	4,000	1,802	98,502

Answer 4

Journal Entries

Date	Accounts	Debit(s)	Credit(s)
12/31/16	Interest Expense	5,700
	Discount on bond payable		1,700
	Cash		4,000
	(Being interest & amortisation expense recorded for the year )
12/31/17	Interest Expense	5,802
	Discount on bond payable		4,000
	Cash		1,802
	(Being interest & amortisation expense recorded for the year )

Note : As Nothing is mentioned in the question , we had applied effective interest method for amortisation of discount.