Question

On January 1, when the market interest rate was 10 percent, Seton Corporation completed a $170,000, 9 percent bond issue for $159,547. The bonds pay interest each December 31 and mature in 10 years. Assume Seton Corporation uses the effective-interest method to amortize the bond discount. 3. Prepare a bond discount amortization schedule for these bonds. (Do not round intermediate calculations. Round your answers to the nearest dollar.) Changes During the Period Ending Bond Liability Balances Period Ended Interest Expense Cash Paid Discount Amortized Bonds Payable Discount on Bonds Pavable Carrying Value Start Yr 1 End Yr 2 End Yr 3 End Yr 4 End Yr 5 End Yr 6 End Yr 7 End Yr 8 End Yr 9 End Yr 10 End

Answer 1

Correct Answer:

Effective Interest Amortization Table
Formula Used	(170,000*9%)	Last year’s Carrying value of bond* Market Rate of Interest (10%)		Interest Expense - Cash Paid			Last year's Carrying value of Bond - current year's Premium amortized
	Changes during the bond				Ending bond liability balance
Date	cash paid	Interest Expense	Discount Amortized		bond payable	unamortized discount	Carrying value of Bond
Start		-	-		$                 170,000	$                        10,453	$                 159,547
Year 1 End	$                            15,300	$     15,954.70	$                   654.70		$           169,345.30	$                    9,798.30	$           160,201.70
Year 2 End	$                            15,300	$     16,020.17	$                    720.17		$           168,625.13	$                    9,078.13	$           160,921.87
Year 3 End	$                            15,300	$     16,092.19	$                    792.19		$           167,832.94	$                    8,285.94	$           161,714.06
Year 4 End	$                            15,300	$     16,171.41	$                    871.41		$           166,961.54	$                    7,414.54	$           162,585.46
Year 5 End	$                            15,300	$     16,258.55	$                    958.55		$           166,002.99	$                    6,455.99	$           163,544.01
Year 6 End	$                            15,300	$     16,354.40	$                1,054.40		$           164,948.59	$                    5,401.59	$           164,598.41
Year 7 End	$                            15,300	$     16,459.84	$                1,159.84		$           163,788.75	$                    4,241.75	$           165,758.25
Year 8 End	$                            15,300	$     16,575.83	$                1,275.83		$           162,512.92	$                    2,965.92	$           167,034.08
Year End	$                            15,300	$     16,703.41	$                1,403.41		$           161,109.52	$                    1,562.52	$           168,437.48
Year 10 End	$                            15,300	$     16,862.52	$                1,562.52		$           159,547.00	$                          (0.00)	$           170,000.00

End of answer.

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