Q17SE_1 - Horngren'S Financial And Managerial Accounting

Question

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 6%, Benson Realty issues

\(700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Benson

Realty received \)713,234 in cash at issuance.

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 $714,175

Step 1: Definition of amortization schedule

Amortization schedule is the table that shows the interest, discount and periodic payment made till the loan paid off.

Step 2: Amortization schedule

Date	Cash Paid	Interest Expense	Discount Amortized	Carrying Amount
12-31-2018				$713,234
06-30-2019	$21,875	$21,398	$477	$713,711
12-31-2019	$21,875	$21,411	$464	$714.175