Question

On January 1, Year 1, Kennard Co. issued $4,000,000, 5%, 10-year bonds, with interest payable on June 30 and December 31 to yield 6%. The bonds were issued for $3,702,468.

Required:

a. Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method (round amounts to nearest whole number)

b. Show how this bond would be reported on the balance sheet at December 31, Year 2

Answer 1

Solution a:

Bond Amortization Schedule
Date	Cash Paid	Interest Expense	Discoount Amortized	Unamortized Discount	Carrying Value
Jan 1, Year 1				$297,532	$3,702,468
Jun 30, Year 1	$100,000	$111,074.04	$11,074	$286,458	$3,713,542
Dec 31, Year 1	$100,000	$111,406.26	$11,406	$275,052	$3,724,948
Jun 30, Year 2	$100,000	$111,748.45	$11,748	$263,303	$3,736,697
Dec 31, Year 2	$100,000	$112,100.90	$12,101	$251,202	$3,748,798

Solution b:

Kennard Co.
Balance Sheet (Partial)
As of Dec 31, Year 2
Particulars		Amount
Long term liabilities:
Bond Payable	$4,000,000.00
Add: Unamortized discount	$251,202.00
Net Bond Liability		$3,748,798.00