Using the effective-interest amortization method On December 31, 2018, when the
ID: 2330911 • Letter: U
Question
Using the effective-interest amortization method
On December 31, 2018, when the market interest rate is 6%, Benson Realty issues $700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Ben- son Realty received $713,234 in cash at issuance.
Requirements
1. Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.)
2. Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first two interest payments.
Explanation / Answer
1.
Stated interest rate = 6.25%/2 = 3.125%
Effective interest rate = Market interest rate = 6%/2 = 3%
2.
A B C D = B - C E F G = E + F Date Interest Payment(Stated Rate 3.125%) Interest Expense
(Effective Rate 3%) Amortization Credit Balance in Bond Premium Credit Balance in Bonds Payable Book value of Bonds Dec. 31, 2018 13234 700000 713234 Jun. 30, 2019 21875 21397 478 12756 700000 712756 Dec. 31, 2019 21875 21383 492 12264 700000 712264
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