Question

On January 1, 2019, Eastern Services issued $140,000 of four-year, 9% bonds when the market rate...

On January 1, 2019, Eastern Services issued $140,000 of four-year, 9% bonds when the market rate was 8%. The bonds were issued at $144,713. Eastern uses the straight line method to amortize the bond premium. Semiannual interest payments are made on June 30 and December 31 of each year. Prepare the amortization table for the first four interest payments. (Round your answers to the nearest dollar number.)

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Homework Answers

Answer #1

Bond Premium = Issued Amount - Face Value

= $144,713 - $140,000 = $4,713

The premium amount of $4,713 will be amortized over 8 semiannual periods (i.e. 4 years) equally. (i.e. $4,713/8 periods = $589 per period)

Interest Amount for each semiannual period = $140,000*9%*6/12 = $6,300 per period

Amortization Table for first Four semiannual periods (Amounts in $)

Period Interest Paid in Cash (A) Premium Amortized (B) Interest Expense to be debited (A-B)
06/30/2019 6,300 589 5,711
12/31/2019 6,300 589 5,711
06/30/2020 6,300 589 5,711
12/30/2020 6,300 589 5,711
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