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 |
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 | ||||
Get Answers For Free
Most questions answered within 1 hours.