MBTA Corporation issued bonds and received cash in full for the issue price. The
ID: 2472602 • Letter: M
Question
MBTA Corporation issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2014. The stated interest rate was payable at the end of each year. The bonds mature at the end of four years. The following schedule has been completed (amounts in thousands):
Date 1 January 2014 Cash N/A Interest N/A Amortization N/A Balance $49,148
end of 2014 Cash $3,660 Interest $3,431 Amort. $229 Balance $48,919
end of 2015 Cash $3,660 Interest ?? Amort. ?? Balance $48,683
end of 2016 Cash $3,660 Interest ?? Amort. ?? Balance ??
end of 2017 Cash $3,660 Interest ?? Amort.?? Balance $48,000
Required: 1) Complete the amortization schedule. 2) What was the maturity amount of the bonds? 3) How much cash was received at the date of issuance (sale) of the bonds? 4) Was there a premium or a discount? If so, which and how much? 5) How much cash will be disbursed for interest each period and in total for the full life of the bond issue? 6) What method of amortization is being used? Explain. 7) What is the stated rate of interest? 8) What is the effective rate of interest? 9) What amount of interest expense should be reported on the income statement each year? 10) Show how the bonds should be reported on the balance sheet at the end of each year (show the last year immediately before retirement of the bonds).
Explanation / Answer
answer: 1
Amortization table:
2. maturity amount of Bond:
$49148
3. Cash received at the issue of bond:
$48000
4. Premium
5. total interest to be disbursed:
$13492
6. straight line
7. stated rate of interest:
7%
8. effective rate of interest:
7.11%
9. interest expense:
Date Cash Interest Amortization Balance 01-01-2014 - - - 49,148 end of 2014 3,660 3,431 229 48,919 end of 2015 3,660 3,424 236 48,683 end of 2016 3,660 3,319 341 48,342 end of 2017 3,660 3,318 342 48,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.