Question

On January 1, 2018, Night Incorporated issued $1,520,000 par value, 4%, 7-year bonds (i.e., there were 1,520 of $1,000 par value bonds in the issue). Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1. The issue price of the bonds based on a 10% market rate of interest is $1,068,622. Prepare the amortization table for the first 2 years, assuming Night uses the straight-line method. (Round each calculation to the nearest whole number and then use the rounded value for each subsequent calculation in the table.)

Answer 1

Date	Cash interest	Straight line interest	Discount amortization	Carrying value
Jan. 1, 2018				1,068622
July 1, 2018	30,400	62,641	32,241	1,100,863
Jan. 1, 2019	30,400	62,641	32,241	1,133,104
July 1, 2019	30,400	62,641	32,241	1,165,345
Jan. 1, 2020	30,400	62,641	32,241	1,197,586

Par value of bonds = $1,520,000

Cash receipts from issue of bonds = $1,068622

Discount on bonds payable = Par value of bonds - Cash receipts from issue of bonds

= 1,520,000 - 1,068622

= $451,378

Semi annual interest payment = Par value of bonds x Stated Interest rate x 6/12

= 1,520,000 x 4% x 6/12

= $30,400

Semi annual amortization of bond discount = Discount on bonds payable/Semi annual interest payment periods

= 451,378/14

= $32,241

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