Question

Please fill in rest of the table and explain.

U 10 L 2. Fill in the next to last line of the amortization table if payments are made quarterly, bu financial statements are prepared at the end of the 4 month: cash payment interest expense 0.02 amort.disc. date now (1) end of 3rd mo (2) end of 4th mo Carrying Value(owe) 96,338 96.765 427 1927 1500 (3) 6mo

Answer 1

First we have to find which method of amortization is used. There are mainly two methods. 1. Effective Interest method 2. Straight Line method. Under Effective interest Amortization method, Interest Expense = Carrying Value x Market Rate of Interest x 1/4. In this case as per information in the question, Interest Expense = $96,338 x 2% = $1,927 Which is equals to Interest Expense of first quarter. And Amortization of Discount = Interest Expense - Cash Payment = $1927 - $1500 = $427.00 Which is equals to discount amortization of first quarter. So, they are using Effective Interest Method for Amortization of Discount. So, the table filled as below Date Cash Payment |(1) end of 3rd mo (2) 1,500 1,500 1,500 1,500 $ $ $ $ Interest Amortization of Expense Discount 0.02 1,927 $ 427 $ 1,935 $ 435 $ 1,944 $ 444 $ 1,953 $ 453 $ Carrying Value 96,338 96,765 97,200 97,644 98,097