Blossom Company sells 10% bonds having a maturity value of $1,300,000 for $1,206
ID: 2608033 • Letter: B
Question
Blossom Company sells 10% bonds having a maturity value of $1,300,000 for $1,206,280. The bonds are dated January 1, 2017, and mature January 1, 2022, Interest is payable annually on January 1. Set up a schedule of interest expense and discount amortization under the straight-line method. (Round answers to 0 decimal places, e.g. 38,548.) Schedule of Discount Amortization Straight-Line Method Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Year Jan. 1, 2017 1206280 130000 1206280 Jan. 1, 2018 1206280 130000 Jan. 1, 2019 1206280 130000 Jan. 1, 2020 1206280 130000 Jan. 1, 2021 1206280 130000 Jan. 1, 2022 1206280 130000Explanation / Answer
Schedule of Discount Amortisation
Straight Line Method
$130,000
(Refer Workings Note 1)
$ $148,744
(Refer Workings Note 3)
$18,744
(Refer Workings Note 2)
Working Note 1:- Calculation of Cash Paid :
$1,300,000 × 10% = $130,000
Working Note 2:- Calculation of discount amortized :
($1,300,000 - $1,206,280) ÷ 5 = $18,744
Note:- To calculate the credit bond discount column, we take the maturity value of the bond ($1,300,000) Less the sale price of the bond ($1,206,280). This amount is $93,720. We then divide this by the life of the bond (2017 - 2022) is 5 years. This amout is $18,744
Working Note 3:- Calculation of Interest Expense :-
$130,000 + $18,744 = $148,744
Working Note 4:- Calculation of Carrying Amount of bonds:
Year 1 carrying amount + Discount Amortized in year 2 = Carrying amiunt of bonds
Year Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Jan 1, 2017 $ 1,206,280 Jan 1, 2018$130,000
(Refer Workings Note 1)
$ $148,744
(Refer Workings Note 3)
$18,744
(Refer Workings Note 2)
$1,225,024 (Refer Workings Note 4) Jan 1, 2019 $130,000 $148,744 $18,744 $1,243,768 Jan 1, 2020 $130,000 $148,744 $18,744 $1,262,512 Jan 1, 2021 $130,000 $148,744 $18,744 $1,281,256 Jan 1, 2022 $130,000 $148,744 $18,744 $1,300,000