Problem 14-5 (Part Level Submission) In each of the following independent cases
ID: 2479881 • Letter: P
Question
Problem 14-5 (Part Level Submission) In each of the following independent cases the company closes its books on December 31. Collapse question part (a) Sanford Co. sells $515,000 of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. The bonds yield 12%. Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end. (Round answers to 0 decimal places, e.g. 38,548.)
Explanation / Answer
Maturity Value of Bond Payable = $515,000
Present value of $515,000 due in 7 period @6% ($515,000 * 0.665) = $342,475
Present value of interest payable semi annually ($25,750 * 5.582) = $143,737
Proceeds from the sale of bond = ($342,475 + $143,737) = $486,212
Discount payable = ($515,000 - 486,212) = $28,788
Schedule of Bond discount amortization
Date Cash paid Interest EXP Discount Amortized Carrying Amount of Bond 3/1/2014 $25,750 $486,212 9/1/2014 $25,750 $29,173 $3,423 $489,635 3/1/2015 $25,750 $29,378 $3,628 $493,263 9/1/2015 $25,750 $29,596 $3,846 $497,109 3/1/2016 $25,750 $29,826 $4076 $501,185 9/1/2016 $25,750 $30,071 $4,321 $505,506 3/1/2017 $25,750 $30,330 4,580 $510,086 9/1/2017 $25,750 $30,605 $4,855 $514,941