Question

E14.6 (LO 1) (Amortization Schedule—Straight-Line) Devon Harris Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1.

Instructions

Set up a schedule of interest expense and discount amortization under the straight-line method. (Round answers to the nearest cent.)

Answer 1

Answer:-

Discount on issue = $2,000,000 - $1,855,816 = $144,184

Discount to be amortized on each interest date = $144,184 / 5 = $28,836.80

Cash interest annual = $2,000,000 * 10% = $200,000

Interest expense = Cash interest paid + Discount amortized

Schedule of interest expense and discount amortization is as below:

Schedule of interest expense and discount amortization
	Amt in $	Amt in $	Amt in $
Year	Cash Interest	Discount amortized	Interest Expense
2021	200,000.00	28,836.80	228,836.80
2022	200,000.00	28,836.80	228,836.80
2023	200,000.00	28,836.80	228,836.80
2024	200,000.00	28,836.80	228,836.80
2025	200,000.00	28,836.80	228,836.80