Question

On January 1, 2018, Reese Incorporated issued bonds with a face value of $150,000, a stated rate of interest of 8 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 7 percent at the time the bonds were issued. The bonds sold for $156,150. Reese used the effective interest rate method to amortize bond premium.

Required

Prepare an amortization table.

What item(s) in the table would appear on the 2020 balance sheet?

What item(s) in the table would appear on the 2020 income statement?

What item(s) and amount in the table would appear on the 2020 statement of cash flows (Direct Method) and under what section the bond liability appear?

(For all requirements, Round intermediate calculations and final answers to the nearest whole dollar amount.)

Answer 1

Amortization Table
Date	Outstanding	Cash	Interest	Premium	Unamortized	Outstanding
	in the beg	Interest	Expense	Amortized	Premium	at end
01.01.18					6150	156150
31.12.18	156150	12000	10931	1069	5081	155081
31.12.19	155081	12000	10856	1144	3937	153937
31.12.20	153937	12000	10776	1224	2713	152713
31.12.21	152713	12000	10690	1310	1403	151403
31.12.22	151403	12000	10597	1403	0	150000
Req b:
Balance 2020
Bonds payable (Gross)			150000
Add: Unamortized premium			2713
Bonds payable			152713
Note: Liabilities will be shown under Long term liabilities section of Total liabilities
Req c:
Income Statement (2020)
Interest expense (debited)			10776
Req d:
Cash flow Statement 2020
Cashflows from operating activities:
Interest paid			-12000