Question

Saved On January 1 of this year, Houston Company issued a bond with a face value of $15.500 and a coupon rate of 7 percent The bond matures in 3 years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 6 percent Houston uses the effective-interest amortization method. (FV of $1, PV of $1. FVA of $1 and PVA of $ (Use the appropriste fectors) from the tables provided. Round your final answers to whole dollars.) Required: 1.Complete a bond amortization schedule for all three years of the bond's life. (Enter all values os positive values) Cash Interest Interest Expense Date Book Value of Bond Amortization Jan. 01, Year 1 Dec 31, Year 1 Dec. 31, Year 2 Dec 31, Year 3 Outlook-free personal email and calendar from Microsoft 2. What amounts will be reported on the income statentent and oe ance sheet at the end of Year 1end rear 2 Year 2 Year 1 December 31 Interest epense Bond labil ty

Answer 1

1) Воnd amortization Schedule for 3 years b d a с Cash interest Interest Expense Premium amortization Book Value of the bond Date Jan1.yearl Dec 31, Year 1 Dec 31,Year 2 Dec 31,Year 3 (d*6%) (а-b) 954.84 $ 947.03 $ S 15,914.00 130.16 $ 137.97$ 146.25 $ 1,085.00 15,783.84 $ 1,085.00 15,645.87 1,085.00 $ $ 938.75 15,499.62 Value of bond = PV of Interest payments+Pv of Maturity value Interest payments = $15,500* 7% S 1,085.00 Maturity Value = $15,500 Here 6% is the discounting factor Issue price of the bond = 1085*(Annuity factor of 6% for 3 years)+$ 15500(PV factor of 6% for 3 years) = 1085*2.673+(15500*0.8396) 15,914 The following amounts reported on the income statemt Year2 Dec-31 Year 1 Interest Expens $ Bond liability 954.84 15,783.84 947.03 $ $ 15,645.87 21