Barnett Corporation sold a $590,000, 8 percent bond issue on January 1, 2014. Th

Question

Barnett Corporation sold a $590,000, 8 percent bond issue on January 1, 2014. The bonds pay interest each June 30 and December 31 and mature 10 years from January 1, 2014. For comparative study and analysis, assume three separate cases. Use straight-line amortization and disregard income tax unless specifically required. Assume three independent selling scenarios:

Required:

Complete the following schedule as of December 31, 2014, to analyze the differences among the three cases.

Complete the following schedule as of December 31, 2014, to analyze the differences among the three cases.

Required:

Complete the following schedule as of December 31, 2014, to analyze the differences among the three cases.

Case A ( Par) Case B (89) Case C(109) a. Cash received at issue b. Bond interest expense, pretax for 2014 c. Bonds payable, 8 percent d. Unamortized discount e. Unamortized premium f. Net liability g. Stated interest rate

Explanation / Answer

Schedule as of Dec-31, 2014 Case A (Par)% Case B (at 89)% Case C (at 109)% a Cash received at Issue                  590,000                     525,100                       643,100 b Bond interest expense, pretax for 2014                    47,200                       53,690                         41,890 c Bonds Payable, 8%                  590,000                     531,590                       637,790 d Unamortized Discount                              -                         58,410 0 e Unamortized Premium                              -                                  -                           47,790 f Net Liability                  590,000                     590,000                       590,000 g Stated Interest Rate 8% 8% 8% Bond Discount Amortization Schedule Under Straight Line Method Year Interest Payment Interest Expense Discount Amortization Unamortized Discount Bond Carrying Value A = 590,000 X 4% B = A + C C =64900/20 D = Preceeding value - c E = 590,000 - D 1/1/14                       64,900                                    525,100 (590,000 - 64900) 30/6/14                      23,600                              26,845                  3,245                       61,655                                    528,345 (64900 - 3245) (590,000 - 61,655) 31/12/14                      23,600                              26,845                  3,245                       58,410                                    531,590 (61655 - 3245) (590,000 - 58410) Total                      47,200                              53,690                  6,490 Bond Premium Amortization Table Under Straight Line Method Date Interest payment Interest Expense Premium Amortization Unamortized Premium Bond Carrying Value A = ($590000 X 8% X 6/12) B= A-C C = 53100/20 B 1/1/14                       53,100                                    643,100 30/6/14                      23,600                              20,945                  2,655                       50,445                                    640,445 (23600 -2945) (53100 - 2655) (643100 - 2655) 31/12/14                      23,600                              20,945                  2,655                       47,790                                    637,790 (23600 - 2945) (50445 - 2655) (640445 - 2655) 47200                              41,890                  5,310

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