Question

On January 1, Year 1, Parker Company issued bonds with a face value of $77,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 10 percent at the time the bonds were issued. The bonds sold for $71,162. Parker used the effective interest rate method to amortize the bond discount. (Round your intermediate calculations and final answers to the nearest whole dollar amount.) Required a. Prepare an amortization table. Date Cash Payment Interest Expense Discount Amortization Carrying Value 71,162 72,118 6,1607 ,116 January 1, Year 1 December 31, Year 1 December 31, Year 2 December 31, Year 3 December 31, Year 4 December 31, Year 5 Totals 6,1607 ,116

Answer 1

Correct Answer:

Requirement 1:

Formula Used	(77,000*7%)	Last year’s Carrying value of bond* Market Rate of Interest (10%)	Interest Expense - Cash Paid	Last year's Carrying value of Bond - current year's Premium amortized
Date	cash paid	Interest Expense	Discount Amortization	Carrying value of Bond
January 1, Year 1		-	-	$                   71,162
December 31, Year 1	$                           6,160.0	$             7,116	$                          956	$                   72,118
December 31, Year 2	$                           6,160.0	$             7,212	$                      1,052	$                   73,170
December 31, Year 3	$                           6,160.0	$             7,317	$                      1,157	$                   74,327
December 31, Year 4	$                           6,160.0	$             7,433	$                      1,273	$                   75,600
December 31, Year 4	$                           6,160.0	$             7,560	$                      1,400	$                   77,000
Total	$                         30,800.0	$       36,637.8	$                  5,838

Requirement 2:

b	Carrying Value	$        75,600
c	Interest expense	$        7,433
d	Cash outflow for interest	$         6,160

End of answer.

Please give a thumbs-up, it will be highly appreciated.

Thanks.