. What is the total interest expense over the life of the bonds? cash interest p

Question

. What is the total interest expense over the life of the bonds? cash interest payment? discount amortization?Amortizing a Discount Ortega Company issued five-year, 5% bonds with a face value of $50,000 on January 1, 2017. Interest is paid annually on December 31. The market rate of interest on this date is 8%, and Ortega Company receives proceeds of $44,011 on the bond issuance. Required:

1. Prepare a five-year table to amortize the discount using the effective interest method. Round the last calculation as needed to bring bond to value. Enter all amounts as positive numbers. If required, round all calculations and final answers to the nearest dollar. *Note: Due to rounding you will have to adjust the interest expense DOWN to the nearest dollar 12/31/21.

. What is the total interest expense over the life of the bonds? cash interest payment? discount amortization?

Identify and analyze the effect of the payment of interest on December 31, 2019 (the third year)

Determine the balance sheet presentation of the bonds on December 31, 2019.

Explanation / Answer

Date Cash Interest Interest Expense Discount Amortized Carrying Value A B C = B-A D = C+D 5% of Face value 8% of Carrying Value 1/1/2017                               -                                          -                       -   $ 44,011.00 31/12/2017 $              2,500.00 $                      3,520.88 $    1,020.88 $ 45,031.88 31/12/2018 $              2,500.00 $                      3,602.55 $    1,102.55 $ 46,134.43 31/12/2019 $              2,500.00 $                      3,690.75 $    1,190.75 $ 47,325.18 31/12/2020 $              2,500.00 $                      3,786.01 $    1,286.01 $ 48,611.20 31/12/2021 $              2,500.00 $                      3,888.80 $    1,388.80 $ 50,000.00 Total                12,500.00                        18,489.00        5,989.00 Total Interest Expense                        18,489.00 Total Cash interest payments                        12,500.00 Total discount amortization                           5,989.00 After paying third year interest balance in the discount on bonds account is : Beginning balance, January 1, 2019 $    3,865.57 (5989-1020.88-1020.55) Less: Amount amortized $    1,190.75 Ending balance, December 31, 2019 $    2,674.82 The balance represents unamortized amount that will be amortized in future. Balance sheet presentation: Long-term liabilities Bonds payable $ 50,000.00 Less: Discount on bonds payable $    2,674.82 $ 47,325.18

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