Question

Debt Issued at a Discount (Straight Line) On January 1, 2020, Drew Company issued $900,000, 5-year bonds for $855,000. The stated rate of interest was 8% and interest is paid annually on December 31. Required: Prepare the amortization table for Drew Company's bonds. If an amount box does not require an entry, leave it blank and if the answer is zero, enter "o". Drew Company Amortization Table Interest Expense (Debit) Discount on Bonds Payable (Credit) Discount on Bonds Payable Balance Carrying Value Period Cash Payment (Credit) At issues 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24

Answer 1

period	cash payment (credit)	interest expense (debit)	discount on bonds payable (credit)	discount on bonds payable balance	carrying value
at issue	0	0	0	45,000	855,000
12/31/20	72,000	81,000	9,000	36,000	864,000
12/31/21	72,000	81,000	9,000	27,000	873,000
12/31/22	72,000	81,000	9,000	18,000	882,000
12,/31/23	72,000	81,000	9,000	9,000	891,000
12/31/24	72,000	81,000	9,000	0	900,000

cash payment = 900,000 face value * 8% stated rate

=>$72,000.

since straight line method is used:

annual credit to discount payable = (900,000 -855,000) / 5 years =>$9,000

interest expense = 72,000 cash payment + 9000 credit to discount payable =>81,000.

carrying value will increase by $9000 every year (i.e with the credit to discount payable).

balance of discount in bonds payable will decrease by $9000 constantly.