On January 1, 2019, Morgan Company acquires $320000 of Nicklaus, Inc., 8% bonds at a price of $275425. The interest is payable each December 31, and the bonds mature December 31, 2021. The investment will provide Morgan Company a 14% yield. The bonds are classified as held-for-collection.
Prepare a 3-year schedule of interest revenue and bond discount amortization.
Correct Answer:
Effective Interest Amortization Table |
||||
Formula Used |
(320,000*8%) |
Last year’s Carrying value of bond* Market Rate of Interest (14%) |
Interest Expense - Cash Paid |
Last year's Carrying value of Bond - current year's Premium amortized |
Date |
cash paid |
Interest Expense |
Discount Amortized |
Carrying value of Bond |
Jan 01, 2019 |
- |
- |
$ 2,75,425 |
|
Dec 31, 2019 |
$ 25,600 |
$ 38,560 |
$ 12,960 |
$ 2,88,385 |
Dec 31, 2020 |
$ 25,600 |
$ 40,374 |
$ 14,774 |
$ 3,03,158 |
Dec 31, 2021 |
$ 25,600 |
$ 42,442 |
$ 16,842 |
$ 3,20,000 |
End of answer.
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