Question

On December 31, 2018, Squidward Corporation issued $500,000, 8%, 20-year bonds for $414,210 cash when the market rate of interest was 10%. The bonds pay interest semi-annually each June 30 and December 31. Squidward uses the effective interest method of amortization to amortize and premium or discount. On the attached work paper, show how the bond liability will be reported on the balance sheet on December 31, 2020. You do not need to make any entry here at Wileyplus for this question.

Answer 1

Solution:

Bond Amortization Schedule
Period	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
31-Dec-18				$85,790	$414,210
30-Jun-19	$20,000	$20,711	$711	$85,080	$414,921
31-Dec-19	$20,000	$20,746	$746	$84,333	$415,667
30-Jun-20	$20,000	$20,783	$783	$83,550	$416,450
31-Dec-20	$20,000	$20,822	$822	$82,728	$417,272

Squidward Corporation
Balance Sheet (Partial)
As of Dec 31, 2020
Particulars		Amount
Long term liabilities:
Bond Payable	$500,000.00
Less: Discount on bond payable	$82,728.00
Net Bond Liability		$417,272.00