Question

For each of the following scenarios: a) Prepare b) What was the amount of cash received when the bond was issued? an amortization schedule for 3 years. c) What amount was recorded as Bonds Payable when the bond was issued? d) What is the amount of interest to be paid for the 2nd year? e) What is the amount of interest reported on the income statement for the 2nd year? f) Show how interest and bonds would be presented on the balance sheet after the 3rd year Buzz Corporation issued $600,000, 7%, 10 year bonds on January 1, 2016 for $559,740. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Buzz uses the effective-interest method to amortize bond premiums and discounts. 2. Slink Corporation issued $450,000, 7%, 10-year bonds on January 1, 2016 for $483,120. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Slink uses the effective-interest method to amortize bond premiums and discounts 3.

Answer 1

2. Buzz Corporation :

a. Amortization Schedule:

Date	Amount Paid	Interest Expense	Bond Discount Amortization	Carrying Value of Bond Discount	Carrying Value of Bonds Payable
January 1, 2016	0	0	0	$ 40,260	$ 559,740
January 1, 2017	$ 42,000	44,779	$ 2,779	37,481	562,519
January 1, 2018	42,000	45,002	3,002	34,479	565,521
January 1, 2019	42,000	45,242	3,242	31,237	568,763

b. $ 559,740

c. $ 600,000.

d. $ 42,000

e. $ 44,779

f.

Buzz Corporation Balance Sheet ( Partial ) December 31, 2018
Liabilities
Current Liabilities
Interest Payable		$ 42,000
Long Term Liabilities
Bonds Payable	$ 600,000
Discount on Bonds Payable	(31,237)	568,763

3. Slink Corporation :

a. Amortization Schedule:

Date	Amount Paid	Interest Expense	Bond Premium Amortization	Bond Premium Carrying Value	Bonds Payable Carrying Value
January 1, 2016	0	0	0	$ 33,120	$ 483,120
January 1, 2017	$31,500	$28,987	$2,513	30,607	480,607
January 1, 2018	31,500	28,836	2,664	27,943	477,943
January 1, 2019	31,500	28,677	2,823	25,120	475,120

b. $ 483,120.

c. $ 450,000

d. $ 31,500

e. $ 28,987

f.

Slink Corporation Balance Sheet ( Partial ) December 31, 2018
Liabilities
Current Liabilities
Interest Payable		$ 31,500
Long Term Liabilities
Bonds Payable	450,000
Premium on Bonds Payable	25,120	475,120