Notes to the Maritime Industries Ltd. financial statements reported the following data on December 31, 2017 (the end of the fiscal year):
Note 6, Indebtedness
Bonds payable 5% due in 2022............................................... $600,000
Less Discount............................................................................. (25,274)......... $574,726
Notes payable 8.3% payable in $50,000
Annual installments starting in Year 2021............................................................. 250,000
Maritime Industries amortizes bonds by the effective-interest method.
Requirements
1. Answer the following questions about Maritime's long-term liabilities:
a. What is the maturity value of the 5% bonds?
b. What are Maritime's annual cash interest payments on the 5% bonds?
c. What is the carrying amount of the 5% bonds at December 31, 2017?
2. Prepare an amortization table through December 31, 2020, for the 5% bonds. The market interest rate for these bonds was 6%. Maritime pays interest annually on December 31.
How much is Maritime's interest expense on the 5% bonds for the year ended
December 31, 2020?
3. Show how Maritime Industries would report the bonds payable and notes payable at
December 31, 2020.