Q16SE_1 - Horngren'S Financial And Managerial Accounting

Question

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues

\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The

present value of the bonds at issuance is \)365,732.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Step-by-Step Solution

Answer

The carrying amount of the bond is $375,165.

Step 1: Definition of bonds

The bond is anagreement between the individual who lent the amount and individual who receive the amount as loan.

Step 2: Amortization test

Date	Cash Paid	Interest Expense	Discount Amortized	Carrying Amount
12-31-2018				$365,732
06-30-2019	$11,812	$14,630	$2,818	$368,550
12-31-2019	$11,812	$18,427	$6,615	$375,165