E10-15 (Supplement 10B) Recording the Effects of a Discount Bond Issue and First
ID: 2518517 • Letter: E
Question
E10-15 (Supplement 10B) Recording the Effects of a Discount Bond Issue and First Interest Payment and Preparing a Discount Amortization Schedule (Effective- Interest Amortization) [LO 10-S2] (The following information applies to the questions displayed below.] On January 1, when the market interest rate was 9 percent. Seton Corporation completed a $200,000, 8 percent bond issue for $187.163. The bonds pay interest each December 31 and mature in 10 years. Assume Seton Corporation uses the effective-interest method to amortize the bond discount. References Section Break E10-15 (Supplement 10B) Recording the Effects of a Discount Bond issue and First Interest Payment and Preparing a Discount Amortization Schedule (Effective-interest Amortization) [LO 10-S2]Explanation / Answer
Jan-1-15 Cash 187163 Discount on Bonds payable 12837 Bonds payable 200000 31-Dec Interest expense 16845 =187163*9% Discount on Bonds payable 845 Cash 16000 =200000*8% Period Interest expense Cash paid Discount amortized Bonds payable Discount on Bonds payable Carrying value Start 187163 Yr 1 end 16845 16000 845 200000 11992 188008 Yr 2 end 16921 16000 921 200000 11071 188929 Yr 3 end 17004 16000 1004 200000 10067 189933 Yr 4 end 17094 16000 1094 200000 8973 191027 Yr 5 end 17192 16000 1192 200000 7781 192219 Yr 6 end 17300 16000 1300 200000 6481 193519 Yr 7 end 17417 16000 1417 200000 5064 194936 Yr 8 end 17544 16000 1544 200000 3520 196480 Yr 9 end 17683 16000 1683 200000 1837 198163 Yr 10 end 17837 16000 1837 200000 0 200000
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