Question

On January 1, Year 1, Hart Company issued bonds with a face value of $103,000, a...

On January 1, Year 1, Hart Company issued bonds with a face value of $103,000, a stated rate of interest of 10 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 9 percent at the time the bonds were issued. The bonds sold for $107,006. Hart used the effective interest rate method to amortize the bond premium. (Round your intermediate calculations and final answers to the nearest whole number.)

Required:

a. Prepare an amortization table.

Date Cash Payment Interest Expense Premium Amortization Carrying Value
January 1, Year 1 107,006
December 31, Year 1 10,300 9,631 669 106,337
December 31, Year 2
December 31, Year 3
December 31, Year 4
December 31, Year 5
Totals

b. What is the carrying value that would appear on the Year 4 balance sheet?
c. What is the interest expense that would appear on the Year 4 income statement?
d. What is the amount of cash outflow for interest that would appear in the operating activities section of the Year 4 statement of cash flows?

  
b. Carrying Value on the Year 4
c. Interest Expense for Year 4
d. Cash Outflow for interest in Year 4

Homework Answers

Answer #1
a) Date Cash Payment Interest Expense Premium Amortization Carrying Value
January 1, Year 1 107,006
December 31, Year 1 10,300 9,631 669 106,337
December 31, Year 2 10,300 9,570 730 105,607
December 31, Year 3 10,300 9,505 795 104,811
December 31, Year 4 10,300 9,433 867 103,944
December 31, Year 5 10,300 9,356 944 103,000
b. Carrying Value on the Year 4 103,944
c. Interest Expense for Year 4 9,433
d. Cash Outflow for interest in Year 4 10,300
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