Question

Specialty Autoparts Inc. issued $160,000 of 7%, 10-year bonds at a price of 86 on January 31, 2017. The market interest rate at the date of issuance was 9%, and the standard bonds pay interest semi-annually. 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. 2. Record Specialty's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are not required. 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. (Round your answers to the nearest whole dollar.) Specialty Autoparts Amortization Table C Interest Payment (3.5% of Maturity Value) Interest Expense (4.5% of Preceding Bond Carrying Amount) Bond Discount Amortization (B-A) Bond Discount Account Balance (Preceding D-C) Bond Carrying Amount ($160,000 - D) Semi-annual Interest Date Jan 31, 2017 July 31, 2017 Jan 31, 2018 July 31, 2018

Answer 1

Solution 1:

Bond Amortization Schedule
date	Interest Payment	Interest Expense	Discount Amortized	Bond discount account balance	Carrying Amount
31-Jan-17				$22,400	$1,37,600
31-Jul-17	$5,600	$6,192	$592	$21,808	$1,38,192
31-Jan-18	$5,600	$6,219	$619	$21,189	$1,38,811
31-Jul-18	$5,600	$6,246	$646	$20,543	$1,39,457

Solution 2:

Journal Entries
Date	Particulars	Debit	Credit
31-Jan	Cash	$1,37,600.00
	Discount on bond payable	$22,400.00
	Bond payable		$1,60,000.00
31-Jul	Interest Expense	$6,192.00
	Discount on bond payable		$592.00
	Cash		$5,600.00