Houston Company issued a $23,000, three-year, 6 percent bond on January 1, 2011.

Question

Houston Company issued a $23,000, three-year, 6 percent bond on January 1, 2011. The bond interest is paid each December 31. The bond was sold to yield 5 percent. (Use Table 5 and Table 6) Required: 1. Complete a bond amortization schedule. Use the effective-interest method. (Make sure that the unamortized discount/premium equals to '0' and the Carrying value equals to face value of the bond in the last period. Interest expense in the last period should be calculated as Cash Interest - Premium amortized. Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Date Cash Interest Interest Expense Premium Amortization Net Liability Balance 1/1/2011 $ 12/31/2011 $ $ $ 12/31/2012 $ 12/31/2013 $ 2. What amounts will be reported on the income statement and balance sheet at the end of 2011, 2012, and 2013? (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Issue Price of Bond = Annual Interest payment*PVIFA(rate,nper) + Face Value*PVIF(rate,nper)

Issue Price of Bond = (23000*6%)*PVIFA(5%,3) + 23000*PVIF(5%,3)

Issue Price of Bond = 1380*2.7232 + 23000*0.8638

Issue Price of Bond = 23625

Requirement 1

2)

Date Cash Interest Interest Expense Premium Amortization Net Liability Balance 1/1/2011 23625 12/31/2011 1380 1181 199 23426 12/31/2012 1380 1171 209 23217 12/31/2013 1380 1163 217 23000

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