Question

On January 1, Year 1, Hart Company issued bonds with a face value of $130,000, a stated rate of interest of 14 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 13 percent at the time the bonds were issued. The bonds sold for $134,572. Hart used the effective interest rate method to amortize the bond premium.
a) Prepare an amortization table.
b) Carrying value on the Year 4:
c) Interest expense for Year 4:
d) Cash outflow for interest in Year 4:

Answer 1

Answer :

(a)

Bond Amotization Table

Date	Cash Payment	Interest Expense	Premium Amortization	Carrying Value
January 1, Year 1	-	-	-	$134,572
December 31, Year 1	$18,200	$17,494	$706	$133,866
December 31, Year 2	$18,200	$17,403	$797	$133.069
December 31, Year 3	$18,200	$17.299	$901	$132,168
December 31, Year 4	$18,200	$17,182	$1,018	$131,150
December 31, Year 5	$18,200	$17,050	$1,150	$130,000

(b). Carrying value on the year 4 = $131,150

(c). Interest expense for year 4 = $17,182

(d). Cash outflow for interest in year 4 = $18,200