Present Value of $1 PV of Annuity of $1 Amortization of Discount Stacy Company i
ID: 2399645 • Letter: P
Question
Present Value of $1 PV of Annuity of $1
Amortization of Discount
Stacy Company issued five-year, 10% bonds with a face value of $10,000 on January 1, 2017. Interest is paid annually on December 31. The market rate of interest on this date is 12%, and Stacy Company receives proceeds of $9,279 on the bond issuance.
Required:
Refer to the tables above for present value factors.
1. Prepare a five-year table to amortize the discount using the effective interest method.
Note: Round the 12/31/18 interest expense and discount amortized up to the nearest dollar. For all other computations, follow normal rounding to the nearest dollar. Enter all amounts as positive numbers.
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2. What is the total interest expense over the life of the bonds? cash interest payment? discount amortization?
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3. Identify and analyze the effect of the payment of interest and the amortization of discount on December 31, 2019 (the third year).
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How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.
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Determine the balance sheet presentation of the bonds for December 31, 2019.
Stacy Company Discount Amortization Effective Interest Method of Amortization Date Cash Interest 10% Interest Expense 12% Discount Amortized Carrying Value 1/01/17 $ 12/31/17 $ $ $ 12/31/18 12/31/19 12/31/20 12/31/21 Totals $ $ $Explanation / Answer
Solution 1:
Solution 2:
Solution 3:
Stacy Company Discount Amortization Effective Interest Method of Amortization Date Cash Interest 10% Interest Expense 12% Discount Amortized Carrying Value 1-Jan-17 $9,279 31-Dec-17 $1,000 $1,113 $113 $9,392 31-Dec-18 $1,000 $1,127 $127 $9,520 31-Dec-19 $1,000 $1,142 $142 $9,662 31-Dec-20 $1,000 $1,159 $159 $9,821 31-Dec-21 $1,000 $1,179 $179 $10,000 Totals $5,000 $5,721 $721