Assume the same information as in E14-12.
In E14-12
Minor Inc. sells 10% bonds having a maturity value of $3 million for $2,783,724. The bonds are dated January 1, 2014, and mature on January 1, 2019. Interest is payable annually on January 1.
Instructions
(a) Set up a schedule of interest expense and discount amortization under the effective interest method.
(b) Which method of discount amortization results in higher interest expense for the year ended December 31, 2014? Which method of discount amortization results in higher interest expense for the year ended December 31, 2018? Explain the results. From the perspective of a user of Minor's financial statements, which method would you prefer the company to use, if you would like the company's income statement to reflect the most faithfully representative measure of net income?