Exercise 14-6 Kingbird Company sells 10% bonds having a maturity value of $2,150

Question

Exercise 14-6

Kingbird Company sells 10% bonds having a maturity value of $2,150,000 for $1,995,003. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1.

Set up a schedule of interest expense and discount amortization under the straight-line method. (Round answers to 0 decimal places, e.g. 38,548.)

Schedule of Discount Amortization
Straight-Line Method
Year Cash
Paid Interest
Expense Discount
Amortized Carrying
Amount of Bonds Jan. 1, 2017 $ $ $ $ Jan. 1, 2018 Jan. 1, 2019 Jan. 1, 2020 Jan. 1, 2021 Jan. 1, 2022

Explanation / Answer

Discount on bond issue = Maturity value of the bond - Selling price of the bond

= 2,150,000 - 1,995,003

= 154,997

Discount amortization over 5 years = 154,997 / 5 = 30,999.4

Cash paid = Maturity value * 10% = 2,150,000*10% = 215,000

Interest expense = Cash paid + Discount Amortized

Schedule of Discount Amortization

Straight-line Method

Year Cash paid Interest Expense Discount Amortized Carrying Amount of Bonds Jan. 1, 2017 1,995,003 Jan. 1, 2018 215,000 245,999.4 30,999.4 2,026,002.4 Jan. 1, 2019 215,000 245,999.4 30,999.4 2,057,001.8 Jan. 1, 2020 215,000 245,999.4 30,999.4 2,088,001.2 Jan. 1, 2021 215,000 245,999.4 30,999.4 2,119,000.6 Jan. 1, 2022 215,000 245,999.4 30,999.4 2,150,000

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