On January 1, 2017, Sheffield Corporation issued $1,750,000 face value, 6%, 10-
ID: 2591368 • Letter: O
Question
On January 1, 2017, Sheffield Corporation issued $1,750,000 face value, 6%, 10- year bonds at $1,627,087. This price resulted in an effective-interest rate of 7% on the bonds. Sheffield uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.
1.Prepare an amortization table through December 31, 2019 (three interest periods) for this bond issue.
2..Bridgeport Corporation sold $3,270,000, 9%, 5-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. Bridgeport Corporation uses the straight-line method to amortize bond premium or discount.
a.) Show the balance sheet presentation for the bond issue at December 31, 2017, using the 107 selling price.
Explanation / Answer
Solution:
Question 1 --- Sheffield Corporation
Amortization table through December 31, 2019 (three interest periods) for this bond issue
Issue Price is less than the face value of the bonds. It means bonds are issued at discount.
Discount on Issue of Bonds = $1,750,000 Face Value - $1,627,087 Issue Price = $122,913
Amortization Table through Dec 31, 2019 (three interest period)
Schedule of Amortization of Bond Discount (Effective Rate Method)
Payment intervals
Period End
Cash Interest (Par Value of the bonds 1,750,000 x Coupon Rate 6% annual)
Interest Expenses (Book Vaue of Bonds x Effective Interest Rate 7%)
Amortization of Bond Discount (Interest Expenses - Cash Interest)
Balance of Unamortized Discount on Bonds Payable
Par Value of Bonds Payable
Book Value (Par Value - Balance of Unamortized Bond Discount)
2
Jan.1, 2019
$105,000
$114,519
$9,519
$104,498
$1,750,000
$1,645,502
3
Jan.1, 2020
$105,000
$115,185
$10,185
$94,313
$1,750,000
$1,655,687
4
Jan.1, 2021
$105,000
$115,898
$10,898
$83,415
$1,750,000
$1,666,585
5
Jan.1, 2022
$105,000
$116,661
$11,661
$71,754
$1,750,000
$1,678,246
Working:
Schedule of Amortization of Bond Discount (Effective Rate Method)
Payment intervals
Period End
Cash Interest (Par Value of the bonds 1,750,000 x Coupon Rate 6% annual)
Interest Expenses (Book Vaue of Bonds x Effective Interest Rate 7%)
Amortization of Bond Discount (Interest Expenses - Cash Interest)
Balance of Unamortized Discount on Bonds Payable
Par Value of Bonds Payable
Book Value (Par Value - Balance of Unamortized Bond Discount)
0
Jan.1, 2017
$122,913
$1,750,000
$1,627,087
1
Jan.1, 2018
$105,000
$113,896
$8,896
$114,017
$1,750,000
$1,635,983
2
Jan.1, 2019
$105,000
$114,519
$9,519
$104,498
$1,750,000
$1,645,502
3
Jan.1, 2020
$105,000
$115,185
$10,185
$94,313
$1,750,000
$1,655,687
4
Jan.1, 2021
$105,000
$115,898
$10,898
$83,415
$1,750,000
$1,666,585
5
Jan.1, 2022
$105,000
$116,661
$11,661
$71,754
$1,750,000
$1,678,246
6
Jan.1, 2023
$105,000
$117,477
$12,477
$59,277
$1,750,000
$1,690,723
7
Jan.1, 2024
$105,000
$118,351
$13,351
$45,926
$1,750,000
$1,704,074
8
Jan.1, 2025
$105,000
$119,285
$14,285
$31,641
$1,750,000
$1,718,359
9
Jan.1, 2026
$105,000
$120,285
$15,285
$16,356
$1,750,000
$1,733,644
10
Jan.1, 2027
$105,000
$121,355
$16,355
$1
$1,750,000
$1,749,999
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Schedule of Amortization of Bond Discount (Effective Rate Method)
Payment intervals
Period End
Cash Interest (Par Value of the bonds 1,750,000 x Coupon Rate 6% annual)
Interest Expenses (Book Vaue of Bonds x Effective Interest Rate 7%)
Amortization of Bond Discount (Interest Expenses - Cash Interest)
Balance of Unamortized Discount on Bonds Payable
Par Value of Bonds Payable
Book Value (Par Value - Balance of Unamortized Bond Discount)
2
Jan.1, 2019
$105,000
$114,519
$9,519
$104,498
$1,750,000
$1,645,502
3
Jan.1, 2020
$105,000
$115,185
$10,185
$94,313
$1,750,000
$1,655,687
4
Jan.1, 2021
$105,000
$115,898
$10,898
$83,415
$1,750,000
$1,666,585
5
Jan.1, 2022
$105,000
$116,661
$11,661
$71,754
$1,750,000
$1,678,246
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